Waiting until the last minute is rarely the best idea when saving for anything, but especially when it comes to RESPs. Canada’s RESP program is designed in such a way that it rewards people who contribute early and regularly, and restricts last-minute contributions. Let’s have a look at these maximum grant allowances, so you can see why it pays to start early.
RESPs are all about the free grant money that the government kicks in when you contribute to your child’s RESP. They pitch in up to 20% of whatever you contributed and, if you qualify for the Additional CESG or Canada Learning Bond, they pitch in even more. The maximum grant you can receive throughout the entire lifespan of your RESP is $7,200 per child and the maximum you can receive per year is $500, or $600 if you qualify for the Additional CESG. So, some simple math shows that if you contribute $2,500/year for approximately 15 years, you will maximize your grant money.
$2,500 x 20% = $500
$500 x 14.4 years = $7,200
Considering that most kids go to post-secondary school in the year they turn 18, that should tell you that it’s definitely best to start contributing when your child is really young.
Say you didn’t set up an RESP until your child was older, or have contributed less than $2,500. Is that lost money? Heck no! You can carry-forward unused amounts, which is super helpful for catching up. But, it’s important to remember that the maximum grant you can receive each year, including a carry-forward amount, is $1,000 no matter how much contribution room you have ($1,100 if you are eligible for Additional CESG). So you can’t, for example, contribute $0 for two years and then in Year 3 contribute $7,500 and expect $1,500 in grant money. Since that would exceed your annual contribution limit, you would only receive $1,000 in grant money.
It’s never too late to start an RESP, but it can be too late to benefit from government grants. To be eligible for the 20% top-up, the government requires that you start to save in your RESP before the end of the calendar year in which the child turns 15 years old (see RESP Age Limit rules). And, as we mentioned, there are annual maximums that limit the amount of grant money you can receive with large lump sum contributions.
So, start as early as possible and contribute as frequently as you can, even if that means saving a small amount to start.