The RESP deadline is fast approaching

The hustle and the bustle of the holiday season has arrived.  Between finding gifts for loved ones, visiting relatives, attending holiday parties and decorating your home it’s hard enough to find time to eat, let alone thinking about your financial goals.  That being said; if contributing to your child’s educational savings is one of your goals you don’t have much time left to contribute.

While there are no rules on when you can put money into a Registered Education Savings Plan (RESP), in order to maximize the matching government grants – you should aim to contribute $2,500 per year by December 31st.  That’s because, for every dollar you deposit to your RESP, the federal government will add a 20 per cent matching Canada Education Savings Grant (CESG) up to $500 per child each year to a lifetime maximum of $7,200 to boost your savings.  The good news is you can catch up if you have not taken full advantage of the CESG in the previous years, but you will only be able to claim two years worth of maximum grants at a time (basically a maximum of $1,000 per year).

It also gets trickier the older your child gets.  Generally speaking if you haven’t contributed a dime by the end of the year in which your child turns 15 – you won’t be able to get any grant money for the next two years.  Here’s the official rule:  December 31st of the year your child turns 17 is the day to qualify for any CESG.  A beneficiary age 16 or 17 can be eligible only if by December 31st of the year the beneficiary turns 15:

  • At least $2,000 in RESP contributions were made and not withdrawn for that beneficiary; or
  • At least $100 was contributed into that beneficiary’s RESP in any four years and not withdrawn.

So while there’s really no true annual deadline, you can definitely run out of time to collect your CESG, which is why it’s so important to get started on an RESP early.  You really want to start when your child is first born – but definitely by the time he or she is nine years old.  And while you can always invest in a Tax Free Savings Account or another investment vehicle later in your child’s life, RESP’s are the only type of savings vehicle for your child’s education where the government offers a matching grant program.  Best of all if your child lives in Quebec, Saskatchewan or British Columbia you may be eligible for even more grant money.  So with all of that free money why wouldn’t you make education savings a part of your holiday rituals as well.

 

Peter Lewis

Peter Lewis is Vice President, Regulatory and Corporate Affairs at C.S.T. Consultants Inc. He is recognized as an expert with respect to education savings plans in Canada, and has addressed several parliamentary and senate committees on the important role RESPs play in improving access to higher education. As a proud father of seven children, three of which are currently in university, Peter has personal experience in the importance of saving for post-secondary education.

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