RESP or RRSP? Where Should Your Next Contribution Go?

One contribution can earn a 20% government grant. Another can cut your taxable income. Choosing between a Registered Education Savings Plan (RESP) and a Registered Retirement Savings Plan (RRSP) sounds like a contest between your kids and your retirement.

It doesn’t need to be. The better question is which account gives your next dollar the biggest advantage without leaving either goal unfunded.

Grab the grant

For many parents, the RESP deserves the first $2,500. The basic Canada Education Savings Grant (CESG) adds 20% to the first $2,500 contributed annually for an eligible child. That’s as much as $500 deposited into the RESP. Families who qualify by income can receive another $50 or $100.

Unused CESG room also carries forward. With sufficient unused room, contributing $5,000 in one year can attract as much as $1,000 of basic CESG. That’s difficult to ignore. A RESP contribution doesn’t generate a tax deduction, though. That’s where the RRSP fights back.

Then check your tax rate

RRSP contributions can reduce taxable income. Your personal deduction room generally grows by 18% of the previous year’s earned income, up to the annual limit and adjusted for workplace pension participation. The 2026 RRSP dollar limit is $33,810. Suppose you have $2,500 available and sufficient room. Here’s what that could look like in various scenarios.

The RRSP examples are simplified. Your actual tax savings depend on your province, taxable income, deductions, and credits. There’s another difference. RESP contributions eventually come back tax-free because they were made with after-tax money. Grants and investment earnings are generally taxable to the student when withdrawn for education.

RRSP withdrawals are generally taxable income for you. So the RRSP deduction isn’t free money. It’s a tax deferral that can become especially useful when contributions are deducted at a higher tax rate than withdrawals face in retirement.

Don’t choose automatically

I’d use a simple order and capture any employer retirement match first. That’s compensation you shouldn’t leave behind. Next, contribute enough to the RESP to capture available CESG.

After that, I’d look at retirement readiness. Parents behind on retirement shouldn’t keep stuffing the RESP while their own RRSP sits neglected. Kids have years to build careers. Retirement doesn’t come with an extension form.

That RRSP also needs investments capable of compounding for decades. One stock worth investigating is Rogers Communications (TSX: RCI.B).

RCI.B

Rogers owns wireless and cable networks alongside sports and media assets. Its acquisition of Shaw expanded its national scale, but heavy debt and weak wireless growth have weighed on the stock. That’s also why the valuation interests me.

Rogers currently trades at $46.98, around 9.7 times forward earnings. The current business isn’t booming. Second-quarter wireless service revenue slipped 0.5%. Yet free cash flow grew 6%, and management’s full-year outlook calls for $4.1 billion to $4.3 billion of free cash flow as capital spending declines. That cash can help reduce debt.

Rogers also pays $0.50 quarterly, or $2 annually, producing a yield around 4.3%. The dividend hasn’t grown since 2019, so I’d buy the stock for improving free cash flow and potential deleveraging rather than dividend growth. For parents building long-term retirement assets, that’s a different proposition from chasing the highest-yielding Canadian dividend stocks.

Bottom line

The RESP-versus-RRSP decision doesn’t need one permanent winner. Capture the RESP grant while it’s available. Use the RRSP more heavily when the tax deduction is valuable or retirement savings are falling behind. Then put those retirement dollars into investments you’re prepared to own through several market cycles when buying stocks in Canada.

Your kids deserve help starting adulthood. They probably don’t want that help to include financing yours.