Updated: April 2025  |  bremo.io financial guides

RRSP vs RESP — Where to Put Your Money First

After having a baby, most Canadian families face the same question: with limited money to save, should we prioritize the RRSP (retirement) or the RESP (education)? Both offer tax advantages and government incentives, but they serve different purposes and the trade-offs are real.

The Core Difference

Why the RRSP Often Comes First

The RRSP offers a tax deduction on contributions. If you're in a 33% marginal tax bracket and contribute $5,000 to your RRSP, you save $1,650 in income tax that year. No other registered account does this. The tax refund can itself be contributed to the RESP.

Additionally, your child can get student loans, bursaries, and scholarships for education — you cannot borrow for retirement. Protecting your own financial security is a prerequisite to helping your children.

Why the RESP Grant Matters

The CESG is a 20% automatic return on the first $2,500 you contribute. No investment reliably returns 20% immediately. Even a modest $2,500 annual RESP contribution costs very little net after the grant. Contributing the minimum to capture the full grant makes financial sense at almost any income level.

The Practical Priority Order for Most Canadian Families

1. Employer-matched retirement contributions (if available) — free money first
2. High-interest debt elimination (anything above 5–6% interest)
3. RRSP contributions if you have meaningful taxable income
4. RESP to at least $2,500/year to capture full CESG
5. TFSA for flexible savings
6. Additional RESP and RRSP beyond the basics

Lower-Income Families: RESP First

For families with lower incomes, the calculus shifts. Lower-income families qualify for the additional CESG (higher grant rate on first $500) and may qualify for the Canada Learning Bond (free $2,000 deposited with no contribution needed). In these cases, opening an RESP and claiming those grants should be the first savings move even before RRSP contributions.

What If You Can Only Do One?

If you genuinely can only do one, the standard advice is:

• High income earner: prioritize RRSP for the tax deduction, then use the refund for RESP
• Lower income earner: RESP first, especially if eligible for the enhanced CESG or Canada Learning Bond
• If unsure: split contributions and do both at lower amounts rather than all-or-nothing