Saving money for your children’s future? Consider an RESP! Managed well, yearly contributions will grow year after year until your child is ready to start a post-secondary program.
You might not know that your RESP contributions are also eligible for grants! To encourage families to save for education, the federal government provides each child with a percentage match on the funds contributed into their RESP’s. In other words, you’ll receive free, no-strings-attached money based on your contribution. Under certain circumstances, you may even receive an additional grant simply for opening an RESP account, regardless of whether you put money into it or not.
There are two types of RESP grants: the Canadian Education Savings Grant and the Canada Learning Bond. Let’s take a closer look at both.
Every child with an RESP is eligible for the Canadian Education Savings Grant (or CESG) which has a maximum payout of $7,200 – enough to cover a full semester for most post-secondary programs. The CESG is calculated and received based your contributions. The government will match 20% of your contributions every year, with a maximum of $500 annually. This means that for every dollar put into your RESP, the government will contribute an additional 20%. To receive the $500 maximum grant every year, you’ll need to put aside $2500 per child.
However, if you’ve done the math and this amount is on the higher side for your budget, it shouldn’t deter you from opening an RESP as you will still receive 20% on the amount you contribute. Also, any unused contribution (and grant) room can be carried forward to future years (up to a maximum annual CESG grant of $1000)!
For example, if you contribute $1000 in one year, you’ll receive a CESG payment equal to $200 in your RESP. If you were to put in up to $4000 in the following year, you could receive $800 in grants.
For this reason—and others, like the power of compound savings and investment—it’s ideal to open an RESP as early as possible. You’ll have more flexibility to make up for missed contributions, and the funds have a long-term opportunity to grow.
Even if you’re not sure when you’ll be able to max out your contribution room, you should still open an RESP. Any money you contribute is tax-sheltered, which means it can grow tax-free—a benefit you won’t enjoy if you open a standard savings account. Even a small yearly payment can grow into a significant sum, and with the help of receiving 20% on your savings, this can add up to pay for your child’s choice of program and tuition costs after high school.
There’s an additional grant available for Canadians with an RESP called the Canada Learning Bond (or CLB). Recognizing that lower-income families may find it challenging to put aside money in an RESP, the federal government will contribute $500 the first year a child is eligible for the grant and $100 every year they continue to qualify, up to $2000. The CLB is essentially a free $2000 from the government for opening an RESP, whether you decide to contribute or not.
Unlike the CESG, this grant is not calculated as a percentage of the amount contributed. Instead, the government will directly deposit this amount in all qualifying RESP accounts. It makes opening an RESP a wise financial choice. Families who are eligible for the CLB will receive funds regardless of whether they’re able to contribute, and any money they can put aside will also be eligible for the CESG.
To qualify for the CLB, a family with 1 to 3 children needs to have an adjusted net income of $49,020 or less in 2021. You can learn more about CLB eligibility on the Canada Revenue Agency website here.
Make an RESP part of your family’s financial plans and take advantage of the grants you are entitled to so you can supercharge your investment!