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How to Make the Most of Your RESP

They say, “The days are long but the years are short.” Looking years into your child’s future, you will most likely see visions of a hefty tuition bill. You will no doubt be thankful for a sizeable balance in your Registered Education Savings Plan or RESP.

This week is Educations Savings Week (November 19th to 25th) and it’s a good time to think about maximizing those short years into hefty savings that will in turn help pay for your child’s post secondary education.

Just by opening an RESP, you can reap the rewards, years later.

Here are the basics:

Having an RESP enables you and your child to receive government-funded education grants paid directly into an RESP.

You can earn 20% on annual contributions up to $2500, in grants (termed “Canada Education Savings Grants” or CESGs) on your contributions to a maximum lifetime CESG grant total of $7,200 per child. Over 18 years, you could gain $23,000 or more.1 And – the total value of your investments may increase if you qualify for the additional Canada Education Savings Grant, Canada Learning Bond, and/or province-specific grants and incentives!

But, even if you are on a tight household budget, you can still make a huge dent through small practices.

After opening an RESP, make sure that you are taking advantage of the Canada Learning Bond. With this grant, no contributions are required and your income eligibility requirements are determined by the government. The amount matched by the government is $500 in the first qualifying year, and $100 for each following year and you qualify until the year the beneficiary turns the age of 15.

There are ways to maximize the amount. No matter how tight your budget, ask yourself, “Can I contribute $1 a day?” This will allow you to save $365 by the end of the year. So from the time that your child turns 17 you would have quite the nest egg.

With your little one receiving the basic grant of 20% plus an additional 20% grant on the first $500 contributed annually (depending on your annual income), each year, your child could receive grants totalling $146 from the government. The great news is that this means that by the age of 18, when your son or daughter is ready to leave for college or university, they could have an RESP worth $10,712.2

For those parents who can afford it, consider maximizing the tax-deferred (or, most probably, tax-sheltered) compounding by contributing beyond the annual amounts needed to maximize the CESGs. This can be done by making an additional lump sum contribution of $14,000, bringing the total amount contributed up to the lifetime maximum of $50,000 per child.

The earlier your child is enrolled in an RESP, the longer your savings have time to grow. Start saving today and benefit from the power of compound growth!


1 This assumes the basic CESG which is equal to 20% of the total annual contributions of $2500 to a maximum of $500 per eligible child, per calendar year. Certain conditions apply. See prospectus for full details.