The RESP is a powerful tool to save for your child’s post-secondary education. The power comes from the Canadian Education Savings Grant (CESG), which boosts your child’s education savings substantially.
The Canada Education Savings Grant is a government incentive to help you save for your child’s education. The basic grant is 20% of your contribution, up to a maximum grant of $500 per year and a lifetime limit of $7,200. For families with Net Income less than $91,831 in 2017, an extra $50 in grants is available, and for families with less than $45,916 an additional grant of $50 is also available, for a total grant of $600. To better understand how the basic and additional grants work, here’s a more detailed outline of the rules:
| Adjusted income for 2017 | $45,916 or less | more than $45,916 but less than $91,831 | More than $91,831 |
| CESG on the first $500 of annual RESP contribution | 40% = $200 | 30% = $150 | 20% = $100 |
| CESG on $501 to $2,500 of annual RESP contribution | 20% = $400 | 20% = $400 | 20% = $400 |
| Maximum yearly CESG depending on income and contributions | $600 | $550 | $500 |
| Lifetime maximum CESG | $7,200 | $7,200 | $7,200 |
Low income families may also eligible for the Canada Learning Bond, depending on their income and the number of children they have. The Canada learning bond is a deposit by the Government of Canada to help parents save for their child’s post-secondary education. The maximum amount of deposits is $2,000: $500 for the first year of eligibility and $100 each year the child remains eligible until the calendar year they turn 15.
For children born in 2007 and later, $500 of CESG contribution room accumulates each year until they turn 18. For children born before then, $400 per year was accumulated between 1998 and 2006. Children need to be residents of Canada in order to accumulate CESG room.
Once your child turns 16 or 17, there are specific requirements to be able to receive the grants. RESP beneficiaries aged 16 and 17 only receive the CESG if at least one of these conditions is met:
In other words, you must start to save in the RESP before the end of the year your child turns 15.
For parents who didn’t start immediately saving for their child’s education, you can catch up on grants over time. The maximum you can contribute each year per child and be eligible to receive the grant is $5,000, meaning a grant of $1,000 per year (assuming you have accumulated grant room). For simplicity’s sake, lets assume your child was born in 2007 and no contributions have been made to the RESP so far. Family income is high enough that only the basic grant will be given. Your child will have $6,000 in accumulated CESG room in 2018, since they earned $500 each year starting in 2007. However, due to the limits set by the government, you can only contribute $5,000 per year until your child turns 17 (in year 2024). If you contribute more in any given year, the additional contribution won’t receive the CESG. Unfortunately, because of this annual limit, you’ll only receive $7,000 in grants, and not the full $7,200 because you don’t have enough years to spread out those $5,000 contributions. The chart below outlines this scenario.
| Year | Age | Contribution Amount | Grant Room Earned | Accumulated Grant Room | Basic CESG Paid | CESG Carry Forward |
|---|---|---|---|---|---|---|
| 2007 | 0 | 500 | 500 | – | 500 | |
| 2008 | 1 | 500 | 1,000 | – | 1,000 | |
| 2009 | 2 | 500 | 1,500 | – | 1,500 | |
| 2010 | 3 | 500 | 2,000 | – | 2,000 | |
| 2011 | 4 | 500 | 2,500 | – | 2,500 | |
| 2012 | 5 | 500 | 3,000 | – | 3,000 | |
| 2013 | 6 | 500 | 3,500 | – | 3,500 | |
| 2014 | 7 | 500 | 4,000 | – | 4,000 | |
| 2015 | 8 | 500 | 4,500 | – | 4,500 | |
| 2016 | 9 | 500 | 5,000 | – | 5,000 | |
| 2017 | 10 | 500 | 5,500 | – | 5,500 | |
| 2018 | 11 | 5,000 | 500 | 6,000 | 1,000 | 5,000 |
| 2019 | 12 | 5,000 | 500 | 5,500 | 1,000 | 4,500 |
| 2020 | 13 | 5,000 | 500 | 5,000 | 1,000 | 4,000 |
| 2021 | 14 | 5,000 | 200 | 4,200 | 1,000 | 3,200 |
| 2022 | 15 | 5,000 | 3,200 | 1,000 | 2,200 | |
| 2023 | 16 | 5,000 | 2,200 | 1,000 | 1,200 | |
| 2024 | 17 | 5,000 | 1,200 | 1,000 | 200 | |
| Total | 35,000 | 7,200 | 7,000 |
Because of this catch-up, there are many permutations that allow you to receive the full grant. Contributing $2,500 each year starting the year your child is born will be the best outcome, since your contributions and the grants have a longer time to earn a return. The latest you can start contributing while still receiving the maximum grant is when you child reaches age 10. At that point, you’ll have to sock away $5,000 per year to max out the grants.
If there are multiple RESP’s for the beneficiary, the grants are allocated according to the timing of the deposits. If you max out the grant in one RESP and another relative subsequently makes a deposit to another RESP for the beneficiary, no grants will be paid into the second RESP that year. It’s important to make sure that if there are multiple RESP’s, the subscribers are communicating with each other. If relatives want to also contribute to a child’s RESP, it’s often easiest to give money to the parent or make a deposit into the parent-held RESP directly.
For family plans, the contributions, and therefore the allocation of grants, is often split equally. If you’re making regular contributions into the account, one child will likely receive the maximum grants before the other. In that case, new contributions will have to be split accordingly so contributions go towards the children that haven’t yet maximized their grant.
In summary, the RESP is a very useful tool for saving for your child’s education since you can boost your savings with the Canada Education Savings Grant and potentially the Canada Learning Bond. Even if you haven’t made the maximum $2,500 annual contribution for your child since they were born, you can still catch up on the grants and make sure you get as much extra money for your children as you can. If you have multiple children, changes to the contributions might need to be made along the way. Finally, if your child is fortunate enough to have multiple RESP accounts, make sure you co-ordinate the contributions and withdrawals with the other RESP owner.
