What is the difference between the RESP and the RDSP?

What is the RESP?

If you are planning to save money for your kid’s education, you might want to consider the Registered Education Saving Plan (RESP). RESP is registered with CRA to set money aside for your child’s education. The contribution you make to this plan is not deductible since you contribute your money after you pay your taxes. The contributions grow free of tax until the child starts withdrawing the fund. You can invest in bonds, GICs, or any other form of investment.

The government will match 20% of your contribution for up to $500 per year. This government grant is called the Canada Education Grant (CESG). Families with low income get 40% CESG and can benefit from the Canada Learning Bond (CLB) of a lifetime grant of $2,000 per child.

The child receives the money when they are ready to attend a post-secondary school. The original contribution amount is free of tax in your child’s hand. However, the investment growth amount is taxable.

If the child has no interest in attending a post-secondary school, the contribution amounts will be attributed back to you free of tax, the investment is taxable, and all the government grants have to be returned.

What is the RDSP?

If you are taking care of a permanently disabled dependant, you might be interested in the Registered Disability Saving Plan (RDSP) to set money aside for them. RDSP is another registered plan where you can invest your contributions free of tax. RDSP income is taxable in the hand of the beneficiary. Disability for tax purposes in Canada requires a qualified practitioner to certify on form T2201, the Disability Tax Credit Certificate, that the individual has a severe and prolonged physical or mental impairment.

RDSP has a lifetime contribution limit of $200,000. You can transfer over amounts from another registered plan to the RDSP. If the Beneficiary is a disabled child who has an RESP account who decides not to attend a post-secondary school, you can rollover the RESP into the RDSP. This is the only time where you can transfer the RESP into any other registered plan.

TurboTax is the number one selling software in Canada. From do it yourself to do it for me – we have you covered. From the first time filers to tenured individuals, we have every possible tax situation addressed. Here is everything you need to know about our software and our support options.