The majority of Canadians may know that an RESP, or Registered Education Savings Plan, is a good option to supplement savings for a child’s post-secondary education, but with so many variations in the market, it can be somewhat confusing to pick the best one for you.
For the most part, RESPs can be broken down into main, popular structures: an individual RESP, and a family RESP. Both of these accounts offer different benefits and may aid in serving a different purpose.
Individual RESP
An individual RESP is an education savings account set up for one beneficiary. It allows a single child to be named as the beneficiary, and contributions made to the account are specifically designated for their education. An individual RESP provides flexibility as it allows for customized investment strategies and the potential to maximize government grants based on the beneficiary’s contributions and eligibility.
The Benefits of an Individual RESP
With an individual RESP, you may have the following benefits:
- Customization – In an individual RESP, all contributions, grants and income are assigned to one beneficiary. This allows for a personalized investment approach that’s tailored to their needs and risk tolerance.
- Individualized savings tracking – An individual RESP allows for clear tracking of contributions, investment growth, and withdrawals – specific to the named beneficiary. This can greatly help monitoring savings and ensures that the funds are appropriately allocated for educational purposes.
- Grant maximization – As contributions in an individual RESP are made for a single beneficiary, that beneficiary can maximize available government grants – including the CESG and the CLB. This offers additional funds to support education expenses.
Family RESP
A family RESP, on the other hand, is an education savings plan that can have multiple beneficiaries, who are siblings, related to the subscriber in a specific way. It allows contributions to be shared among the beneficiaries, providing greater flexibility for parents or guardians who have multiple children or grandchildren. With a family RESP, unused grant amounts from one beneficiary can be transferred to another, provided they are eligible, maximizing the grant utilization within the plan. This type of RESP simplifies administration and offers potential cost savings compared to maintaining separate individual RESPs for each beneficiary.
The core difference between an individual RESP and a family RESP is that an individual RESP is meant for one child, whereas a family RESP is meant for multiple children and can be used to split savings between the different children included in the account. You can start a family account with one child and add more to the plan if needed, provided they are a sibling and meet specific criteria set out by the Canada Revenue Agency.
The Benefits of a Family RESP
With a family RESP, you may have the following benefits:
- Grant transferability – Unused grant amounts from one beneficiary in a Family RESP can be transferred to another beneficiary within the plan in certain cases, provided the beneficiary that they’re being transferred to has not reached the lifetime maximum. This flexibility allows you to make the most out of your dollars saved and ensures that available grant funds are fully utilized within the family unit.
- Cost efficiency – Having a family RESP rather than multiple individual RESPs can result in cost savings, since it eliminates the need for numerous account fees and administrative expenses that may be associated with managing individual accounts.
- Simplicity – A family RESP simplifies the administrative process by consolidating contributions, aiding in record-keeping for multiple beneficiaries, and promotes investment management. This more streamlined approach may save both time and effort for the guardians overseeing the RESP.
- Future planning – So long as the beneficiaries are related by blood or adoption, and the person opening the family plan is a parent, grandparent or sibling of the beneficiary, you can continue to add sibling children to the plan. This means that if you have another child or grandchild, you can often add them to your pre-existing RESP without having to pay to open a new one.
- Shared contributions – Family RESPs allow contributions to be shared among multiple beneficiaries, whether family members or siblings. This feature allows parents or guardians to allocate funds based on each beneficiary’s needs.
Depending on you and your family’s needs, the number of children you have, or your family’s financial situation, either a family RESP or an individual RESP may be better. We highly recommend discussing with an Education Savings Specialist if you can’t decide which type of RESP to subscribe to. Saving for education is already difficult enough without having to make additional, stressful decisions about what investment vehicle to contribute to. However, if all else is the same (like fees, investment strategy, etc.), and you’re able to, it is typically more advantageous to open a family plan as it shares many of the benefits of an individual plan and gives you even more flexibility.
Family vs Individual RESP: FAQ’s & More
Can I change an Individual RESP to a Family plan?
Typically, it isn’t possible to directly change an individual RESP to a family RESP. Both are separate accounts that have different rules and structures, and therefore may not be blended together. After an individual RESP has been established, it remains as such – and therefore the contributions and grants that are associated with that account must be specific to the beneficiary that is named under the account.
Should you want to switch from an individual RESP to a family RESP, you would need to open a new family RESP account and make the necessary arrangements to transfer the funds from the individual RESP to the new family account. Consult with an Education Savings Specialist before making any changes to your account structure or to better understand the potential consequences of a transfer.
What is the difference between Individual RESP and Family RESP?
A family RESP is established for multiple beneficiaries and an individual RESP is established for one. Contributions that are made to a family RESP may be shared amongst the beneficiaries, whereas contributions for an individual RESP are designated for the specific beneficiary.
With a family RESP plan, unused grants can be transferred from one beneficiary to another up until the lifetime maximum, maximizing grant utilization. On the other hand, in an individual plan investment growth and government grants are attributed to a single beneficiary.
How does the Canada Revenue Agency determine eligibility?
The CRA determines eligibility for RESPs based on residency (as the beneficiary must be a resident of Canada), SIN (their SIN must be valid for contributions to be made to their RESP), they must enroll in a qualifying post-secondary educational program, whether that’s a college, university, trade school, or other designed educational institution, and the RESP must be collapsed by the end of its 36th year of being established.
Can you transfer grants between RESPs?
No, it is not possible to transfer grants from one individual RESP to another individual RESP, or from an individual RESP to a family RESP, or vice versa.
RESP grants are specific to each beneficiary. They are provided to the RESP based on the contributions made for that specific beneficiary.
What is the downside of Family RESP?
Depending on your specific needs and what your financial situation is, there may be multiple downsides to a family RESP. One potential downside of a Family RESP is the challenge of managing and distributing funds among multiple beneficiaries. If there are significant age gaps or variations in educational goals among the beneficiaries, it may be challenging to allocate funds in a fair and balanced manner. This can lead to complexities in determining how much each beneficiary receives and potentially cause conflicts or unequal opportunities for education funding within the family.
The other drawback to Family RESPs is they can only be opened by a parent, grandparent or sibling of the beneficiary(ies). While anyone can contribute to the plan, this makes starting one a little more restrictive than individual plans.
Who can contribute to RESP?
With an RESP, multiple individuals may technically contribute to the plan. This offers a collaborative approach to saving for the individual’s (or multiple individuals’) educational expenses. Parents, grandparents, family members, friends, and even the beneficiary themselves can contribute to an RESP. The flexibility in contribution allows for a much broader support network to help participate in the educational savings journey.
Since parents are typically the primary caregivers, they often take on a significant role in contributing to the RESP. They may make regular contributions based on what their financial capacity is, aligning the savings plan with their overall long-term goals. Grandparents will often play a vital role in contributing to the child’s educational savings plan, and may choose to contribute to an RESP as a means of supporting their grandchild’s future education. Other family members and friends who are invested in the beneficiary’s education can also choose to contribute, offering further financial assistance.
The beneficiary may choose to take an active role upon reaching the age of majority and contribute to their own RESP, should they have the available funds. This enables them to take a more active role in their education savings and develop a stronger sense of financial responsibility.
Embark is Canada’s education savings and planning company. The organization aims to help families and students along their post-secondary journeys, giving them innovative tools and advice to take hold of their bright futures and succeed.
