Family Finance

RESP: Is your child 11 years old?

One of the most attractive features of the Registered Education Savings Plan (RESP) is the government grant (free money!) that comes with it. The grant room grows every year but you need to contribute to your child’s RESP in order to receive the grant.

What if you have missed making contributions in certain years, or if you haven’t started making contributions at all?

Thanks to carry forward provisions, you can still get the full grant entitlement of $7,200 if you start making contributions to your child’s RESP starting at age 11. It’s best, however, to start early so that the investments have growth potential and you ensure you get your maximum grant.

RESP background

An RESP is a special account that can help you save money for your child’s post-secondary education. While you do not get a tax deduction for RESP contributions like you do with an RRSP, the funds in the RESP will grow on a tax-deferred basis. This allows you to take advantage of compound growth, meaning there will be more money in the plan when your children need it to pay for post-secondary education.

CESG basics

As an incentive to help you save for your children’s education, the government offers the Canada Education Savings Grant (CESG) – a grant of 20% on the first $2,500 contributed to an RESP each year for a total of $500. (A child starts accumulating grant room at a rate of $400 per year from 1998, and $500 per year from 2007. Lower income families get an additional CESG on the first $500 contribution.)

If you invest a minimum of $2,500 per year, you would reach the lifetime maximum grant of $7,200 by the 15th year ($7,200 divided by $500 = 14.4 years). The grant room stops accumulating in the year that your child turns 17.

While you can carry forward unused grant room, you can only get a maximum grant of $1,000 per year. If you are able to contribute $5,000 every year from ages 11 to 17, then you can still get the full lifetime maximum grant ($1,000 x 7 years). If you miss too many contributions, you will lose some of the grant entitlement.

Talk to your financial advisor about contribution options.

Reminder!

To get the CESG for 2008, you must make an RESP contribution by December 31.

To read about RESPs in general, click here for our brochure, Registered Education Savings Plans – Invest in your child’s future.

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