One of the most important financial moves for a Canadian family to make is saving for the future, particularly when it comes to education or long-term care. The average financial payout of attending post-secondary education in 2024 was $7,400 one year according to Statistics Canada. For families who support a person with disabilities, long-term financial needs can be more than $300,000 over the course of their lives. That’s where registered savings plans like the Registered Education Savings Plan (RESP) and the Registered Disability Savings Plan (RDSP) come in.
Both are intended to assist Canadians in establishing a solid financial future and becoming independent, but both fulfil very different purposes. The way these accounts function, their contribution limits, and the special tax breaks of each can have a big impact on your family’s financial game plan for 2025 and beyond.
Understanding the Registered Education Savings Plan contribution (RESP)
An RESP is a tax-deferred government-approved account for the purpose of saving for a child’s post-secondary education in Canada. Contributions to a RESP are made with after-tax dollars, so they won’t give you a tax deduction immediately. But investment income that is inside the plan grows tax-free and is withdrawn at no cost for education expenses.
You have the CESG being one of the most attractive RESP advantages available. The government provides a 20% match on annual contributions, up to $500 per child per year and with a lifetime maximum of $7,200. Low-income families receive even more through the Canada Learning Bond (CLB), which offers up to $2,000 per eligible child.
The contribution limits are not strict, and there is no yearly limit, but it does obey a lifetime maximum of $50K/beneficiary. Withdrawals for educational purposes are known as Educational Assistance Payments (EAPs) and are taxable,but tax is attributed to the student beneficiary, who generally has little or no income, and so the total impact of tax is still very low.
Families can open an RESP through a bank or credit union, and online companies provide quotes for RESPs on the web to compare various investment choices.
Understanding The Registered Disability Savings Plan (RDSP)
The Registered Disability Savings Plan is a long-term savings vehicle designed to provide financial security for Canadians with disabilities. Like the RESP, the RDSP allows tax-deferred growth, but it also includes generous government matching incentives.
Eligible individuals must qualify for the Disability Tax Credit (DTC) to open an RDSP. The government provides two types of financial support:
- Canada Disability Savings Grant (CDSG): Matches contributions up to 300%, depending on family income, with a lifetime maximum of $70,000.
- Canada Disability Savings Bond (CDSB): Contributes up to $20,000 for low-income Canadians, even if no personal contributions are made.
There is no annual limit for RDSP contributions; however, the lifetime maximum contribution per beneficiary is $200,000. Earnings and government contributions grow tax-deferred until a distribution is taken. The RDSP is still one of the strongest children’s tax-saving plans in Canada for parents caring for a disabled child.
Once the beneficiary withdraws from this account, which is known as a Disability Assistance Payment (DAP), it would be partially taxable, depending on whether the withdrawal is from personal contributions or government grants and bonds. Such funds can be spent on medical, housing, or educational costs—meaning the RDSP is a flexible financial instrument.
Key Differences Between RESP And RDSP
| Feature | RESP (Registered Education Savings Plan) | RDSP (Registered Disability Savings Plan) |
| Purpose | Save for a child’s post-secondary education. | Provide long-term financial security for individuals with disabilities. |
| Eligibility | Canadian residents with a valid SIN, usually opened by parents or guardians. | Canadian residents are eligible for the Disability Tax Credit (DTC). |
| Contribution Limits | Lifetime maximum of $50,000 per beneficiary; no annual cap. | Lifetime maximum of $200,000 per beneficiary; no annual cap. |
| Government Incentives | CESG (20%–40% match) and CLB for low-income families. | CDSG (up to 300% match) and CDSB for low-income individuals. |
| Tax Treatment | Contributions are not tax-deductible; growth is tax-sheltered. | Contributions are not tax-deductible; growth is tax-deferred. |
| Withdrawals | Taxed in the student’s hands (low or zero tax rate). | Taxed in the beneficiary’s hands when withdrawn. |
| Investment Options | Mutual funds, ETFs, GICs, bonds, and savings deposits. | Similar options—mutual funds, ETFs, GICs, and savings deposits. |
| Age Limits | Contributions are allowed until the beneficiary turns 31. | Government grants and bonds end at age 49. |
| Government Matching Period | Up to $7,200 per child in lifetime CESG. | Up to $70,000 in CDSG and $20,000 in CDSB combined. |
| Primary Advantage | Eases education costs through tax-free growth and grants. | Builds long-term savings with unmatched government incentives. |
| Drawbacks | Funds must be used for education, or grant repayment applies. | Withdrawals before 10 years may forfeit government contributions. |
Smart Tax Tips And Savings Strategies For 2025
- Start Early: Both RESP and RDSP accounts benefit from compounding. The sooner you start, the greater the long-term growth potential.
- Maximize Government Grants: Always contribute enough to receive the full CESG or CDSG matching each year.
- Coordinate With Other Plans: Use a Tax Free Savings Account (TFSA) alongside RESP or RDSP to manage short-term needs and tax exposure.
- Avoid Early Withdrawals: Removing funds before required timelines can result in lost grants or taxable income.
- Use RESP Quotes Online: Compare investment providers to find lower fees and stronger performance for your education savings plan Canada options.
- Plan For Transition: For individuals with disabilities pursuing higher education, both plans can work together—RESP for tuition and RDSP for living or support expenses.
Conclusion
Both the RESP and RDSP are great products in Canada’s financial arsenal. Whereas the RESP is directed toward education, the RDSP offers support for life to those with disabilities. All three come with their differences in tax benefits, bonuses, and flexibility, and can make a big difference to your financial position.
Knowing contribution rules, getting the most from government incentives, and employing smart tax strategies can help families and individuals take advantage of those registered savings options in 2025.
Learn More: Prepaid Tuition Plans vs. RESPs: Choosing the Best Education Savings Strategy for Your Child