Putting Birthday Money Toward Their Future: RESP and 529 Basics

Why birthday money is a good fit

A seven-year-old who gets $40 from an aunt usually spends it in one trip to the toy store, and honestly, that's part of the fun. But a lot of families end up with more gift money than a kid needs, especially once grandparents, godparents and family friends all send something.

Setting aside part of it is a small habit that adds up. Twenty dollars here and fifty there doesn't feel like much, but a few birthdays and holidays a year, every year, for 15 years, is real money by the time your child finishes high school. In Canada, the government grant makes each deposit stretch further.

In Canada: the RESP

A Registered Education Savings Plan (RESP) is a savings account for a child's education after high school. You open one through a bank, credit union or other RESP provider, and the child needs a Social Insurance Number to get the government grants. Money inside the plan grows tax-sheltered until it's withdrawn for school.

What the government adds

This is the part that makes an RESP worth it. According to the Government of Canada's RESP page:

• Canada Education Savings Grant: 20% of the first $2,500 contributed for a child each year, so up to $500 a year, with a lifetime maximum of $7,200 per child.
• A little extra for some families: in 2026, families with an adjusted income up to $58,523 get another 20% on the first $500, and families between $58,523 and $117,045 get another 10%.
• Catch-up room: if you miss a year, the unused basic grant carries forward, so you can catch up later by contributing more.
• Canada Learning Bond: for children from lower-income families, up to $2,000 with no contribution needed at all. It starts with $500, then $100 for each eligible year up to age 15.

The grant is available until the end of the calendar year your child turns 17. There's no yearly cap on how much you can put in, but the lifetime limit is $50,000 per child. British Columbia and Québec have their own extra programs on top.

A birthday example

Say your daughter turns six and family sends $300 in cards and e-Transfers. If you put $200 of it into her RESP, the basic grant adds $40. Do the same at the holidays and that's another $40. It won't cover tuition on its own, but it's free money on top of money she'd likely have spent on things she's outgrown by spring.

In the US: the 529 plan

A 529 plan is an education savings account run by a state. You don't have to use your own state's plan, though some states give a tax break only for theirs. There's no federal match like Canada's grant. The benefit is on the tax side. Per the IRS page on 529 plans:

• Tax-free growth: earnings build up without federal tax, and withdrawals aren't taxed when they pay for qualified education costs.
• College and more: qualified costs include college, university and vocational school, plus registered apprenticeships.
• Some K-12 costs too: starting in 2026, up to $20,000 a year can go toward tuition and certain other costs for kindergarten through grade 12.
• No federal deduction: contributions aren't deductible on your federal return, but many states offer their own deduction or credit.

Anyone can contribute, not just parents. Many state plans have a gifting page or code you can share with relatives, so a grandparent can send a birthday contribution straight into the account. For gift tax purposes, contributions count as gifts, and the 2026 annual exclusion is $19,000 per giver for each child. Birthday-sized gifts are nowhere near that, so most families never have to think about it.

If your child skips college, the money isn't stuck. You can change the beneficiary to another family member, and under rules that took effect in 2024, up to $35,000 over a lifetime can be rolled into the child's own Roth IRA, as long as the 529 has been open at least 15 years and a few other conditions are met.

How to ask family to give toward savings

The awkward part isn't the account. It's telling Grandma you'd rather have $25 in the RESP than another stuffed animal. A few things make it easier:

• Keep it optional: "If you'd like to give something, we're putting a little toward Leo's school fund this year" lands better than a request.
• Give one easy way to do it: a single link or a clear note on how to send it. Nobody wants to look up a transit number at the party.
• Mix it with something fun: many families pair savings with one small present or an experience, so the birthday still feels like a birthday.
• Tell your child what it is: even a five-year-old can understand "this money is growing for when you're bigger." Older kids like seeing the balance go up.

If you're still working on invitation wording, our guide on how to say "no gifts, please" has lines you can adapt, and how much to spend on a kid's birthday gift helps guests who aren't sure what amount is normal.

Savings, an experience, or both?

You don't have to pick one. Some families put everything toward savings. Others choose one experience the child will remember, like swimming lessons or a day at the science centre, and send what's left over to the RESP or 529. Both are good uses of the same generosity, and the experience gives your child something to look forward to now.

For younger kids especially, a mix tends to work well. A four-year-old won't remember a deposit, but they will remember the aquarium.

Frequently asked questions