One of the greatest perks of the Registered Education Savings Plan (RESP) is that it can stay active for a whopping 36 years. A lot can happen in 36 years. A teenager could graduate from college, settle down, have a child of their own, and put that child through school too—all with the same RESP.
You may be thinking, so an RESP can be passed down from one generation to the next? Well, technically, yes it can.
Here’s how a multi-generational RESP could unfold
Let’s say two doting parents start a family RESP for their 10-year-old daughter, Olivia. Fast-forward 8 years, Olivia is ready to enroll in college and pay for post-secondary school with the RESP. Say she spends some of the RESP money on tuition, rent, and pizza at the campus cafeteria. By the time Olivia graduates from college, maybe there’s still some principal from the original contributions in the plan continuing to grow. (I mean, how much pizza can one person eat?!)
Then, at age 24, Olivia announces she’s landed a position as a junior marketing associate, and she’s getting married to Oliver! A year later, Olivia gives birth to a little boy they call Max. Olivia and her parents, giddy with love for the new baby, decide to keep the RESP open—it’s only 15 years old, after all, and that money has been growing with investment income, tax-free. They can now add contributions for Max for 16 years. A family member can be added to a Family RESP, so long as they're related by blood or adoption to the original beneficiary (in this case, Olivia). Might as well keep a good thing going, right? So, Olivia's parents add their grandson Max as a beneficiary within the Family RESP. By the time Max is 17, and ready for post-secondary school, the RESP will be 31, meaning he'll be able to withdraw from it for four more years.
Pretty cool, right? Depending on the circumstances, one RESP could potentially give the gift of education to two generations of learners!
Now for a caveat: If there are any government grants that were intended for Olivia (initially the only named beneficiary) that Olivia didn't use, they would have to be returned to the government. Grant money can only be transferred from one beneficiary to the next if they are siblings.
Other smart ways to share RESPs within families
The important takeaway here is that 36 years is a long time. And in that time, an RESP can grow and can be used for multiple important people in your life. A Family RESP might be used for both an older sister and a younger brother. Of course, income earned in the RESP can be shared back to the original contributor as well, in the form of a transfer right into your registered retirement savings.
A lot can happen in 36 years, and RESPs are flexible enough to go with the flow. Or, rather grow with the flow. Until next time, happy RESP investing, and remember to pat yourself on the back for giving the gift of education—truly a gift like no other.
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