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What Is The Maximum RESP Contribution In Canada?

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This article is brought to you by insurance for children, Canada’s leader in financial planning for children and the creator of Child Plan ™ the fastest growing alternative to the RESP.

Year after year, post-secondary education enrollments are steadily increasing. On top of higher enrollments, costs are going up at the same time. Have you saved enough for your child’s education? There are a few solutions like an RESP account, yet parents are learning the limitations and restrictions of these accounts and how they may impact your children when they are 18 from getting the best education they’ll need to succeed. 

Sure, there might be enough in the account at first, but with both education costs rising and the way education is being delivered every year, will there be enough for when the bill comes due for the first tuition payment and will the future changes in education make the RESP irrelevant? 

A child’s future is a concern that never leaves the minds of their loved ones and caregivers. Concern. However, planning and seeking information is the best option to be able to face the future without setbacks. 

It’s also important to have the right information about child savings plans to begin funding their future and make the most of it as an advantage that will benefit the children’s future decisions. At the same time, parents will be able to prepare themselves financially no matter what path their children wish to take in the future.

In this article we will discuss the important things you should know about the RESP, the annual contribution limit, and how much you can actually contribute to the RESP .

We will also highlight an alternative option called Child Plan ™. Child Plan ™ is a participating whole life plan and the only tax free investment parents and grandparents can open for their children and grandchildren in Canada. With Child Plan ™ your child will receive an annual tax-free dividend every year for  life. Find out more about Child Plan ™ here

What Is An RESP (Registered Education Savings Plan)?

A Registered Education Savings Plan, or RESP, is a government program that in order for your child to access their RESP account and use the funds for their education they will have to meet government rules on where your child can go to school, what they can study and how the money you save can be used. 

With an RESP the government matches 20% of whatever you deposit with a Canada education savings grant. The maximum Canada education savings grant you will receive by the time your child is 17 is $7,200 if you deposit $36,000. Any growth within the RESP account will be entirely due to the stock market.

Any growth or losses in the RESP will come entirely from investment decisions you are responsible for. Any growth on the investment will grow tax deferred until the funds are withdrawn to pay tuition fees and other education related expenses and can only be accessed if your child is enrolled in a university, college or government-approved educational program. You as the subscriber can open a plan for one or more of your children called beneficiaries, depending on the type of RESP and RESP beneficiary. The eligible beneficiary can be children, grandchildren, nieces, nephews or family friends.

However, as the beneficiary, your child cannot have more than one RESP account. That means that grandparents and parents cannot open independent RESP accounts for the same child.

There are certain rules and limits you must know in order to contribute to an RESP that many parents do not know about. It’s important to understand your saving options to know if it will be of any benefit for your child’s future education. 

Especially when it is difficult to predict what your child will want to do or study when they are 18 or if they even want to go to college at all. 

What Is The RESP Contribution Limit?

There is no annual RESP contribution limit, however, the maximum Canada education savings grant (CESG) you will receive is 20% of whatever you contribute annually up to a maximum of $500.

After you contribute the first $2500 there is no benefit to contribute more. Since the CESG grant is capped at $500. The lifetime contribution limit is $50,000 per beneficiary, however, you reached the maximum of $7,200 CESG grants by the time you contribute $36,000. 

Know the terminology, while many RESP articles commonly refer to the term lifetime. However, the term lifetime is inaccurate as after the age of 17 in the year your child turns 18, you can no longer contribute any more funds to the RESP account.

Tracking RESP Money Contributions

Tracking RESP contributions will depend on the type of plan which you are contributing to. There are two types of RESP accounts. An individual plan and a family plan.

Family Plan Contributions

If you have a family plan with two or more children, contributions must be tracked for each child listed in the plan. Contributions may be different for each child and more than one contribution may be made at the same time. 

Family plans can be very complicated. The main issue affecting family plans is what happens to the money you saved for one child if that one child decides to not go to university and follow a trade program or go straight to work?

While funds you saved for the child can be shifted to the second or third child. There may be family dynamics where the one-child who chose a different path believes they have been disadvantaged as the funds you saved for their future, were now being used by another sibling.

Another issue that may affect your plans, is what happens if the first child uses most of all the funds in their account? Will you shift money from the younger child as they haven’t yet begun to use their account?  

Additionally, it is important that when you have a family plan, you keep track as to whether or not the financial institution that holds the account has been properly reporting the contributions to the government and collecting all the CESG grants that you are owed.

Collecting the CESG grant is the responsibility of the institution, but it’s up to you to make sure they did it. If they don’t and you learn years later they failed to ensure the proper paperwork was submitted to receive the CESG grants, you can’t ask for prior year’s grants due to their errors. 

Group Plan Provider

When you open an RESP account you have the following options as to where to open the account. You can open an RESP account at your local bank, your investment advisor, or with a group or RESP company.

Group RESPs are not financial institutions, they are private companies marketing RESP’s and the funds they collect from parents are grouped with other families’ contributions in trust accounts. In order to use the funds in a group RESP account you will be required to make contributions to the RESP at set times during the life of the plan. (until your child reaches 18)

The RESP provider is responsible for crediting the money the subscriber deposited into the group RESP to an account in the subscriber’s name. Any government grants or vouchers received by the child will be placed in a separate account that is in the name of the beneficiary.

In the past 20 years, there have been multiple complications when parents use group RESP providers to save for their children’s futures. The most common complication has been that the group RESP provider would require that you contribute for the entire 18 years.

If you have this type of plan please consult your group RESP representative to learn what are the rules governing the plan should you stop contributing and if you decide to move or transfer the RESP account to another RESP provider what are the fees that you’ll be required to pay. 

Are RESP Contributions Tax-Deductible?

Contributions made to an RESP are not tax-deductible, however, any growth on the money you deposited will grow tax-deferred while in the plan.

The term tax-deferred means that while the funds are within the account they are not taxed on any growth, however the growth will be taxed when your child withdraws from the RESP account for their education.

 Are There RESP Alternatives

While the RESP has been the most popular way to save for a child’s future since 1998 when they were first created. Over the past 20 years, while the cost of education has continued to rise, the rules and restrictions governing the use of the RESP by children have continued to increase. 

As an example, there has been no increase in the CESG (matching grants) that parents receive for their contributions since 2008. And even then it was only a $100 a year increase from $400 to $500. Additionally, there are several new restrictions on how the funds can be used by the children.

It has also come as a surprise to many parents that when their children decide to not pursue post-secondary education the RESP account has to be closed and all the CESG grants returned even if you lost it on the stock market. And when they attempt to withdraw the growth portion of the account they must pay their full marginal taxes on the growth of the account plus a 20% penalty.

While contributing to an RESP is still the most popular, parents will need to educate themselves on all the  hidden and complicated withdrawal rules and limitations to take into account when making this important planning for your child’s future. 

There are some alternatives with which parents can save on their children’s post-secondary education costs and replace or supplement the RESP. 

Participating whole life insurance plans and Child Plan ™ participating plans from insuranceforchildren.ca is the fastest growing alternative to RESP is one option that many parents are looking into.

While RESPs have been around since 1998, participating whole life plans as an investment for children’s futures were started in Canada in 1947.

Before the RESP was created, participating whole life plans were the most widely used children’s investments in Canada.

While there are many advantages to a Child Plan ™ participating whole life plan, the most beneficial is that from the day that you open Child Plan ™, your child or grandchild will receive a tax-free annual dividend for their entire life and not just at the age of 17 as is the case with the RESP. 

Benefits Of A Child Plan ™ Participating Whole Life Are:

A Child Plan ™ participating whole life has no restrictions on what your child can use the cash value for.

While the RESP can only be used while your child attends a government-approved university education program. Child Plan ™ participating whole life can be used for any education anywhere around the world without restrictions or government approval. 

In addition to education, your child has the freedom to be able to access the cash value of their Child Plan ™ to also buy their first home, start a business, or for any financial need they will have in life without any government restrictions. 

Child Plan ™ participating whole life also includes fully paid permanent whole life insurance for your future generations. When opening a participating whole life plan for a child you are saving 10s of thousands of dollars in their future because they will not need to ever apply or spend any money to buy life insurance when they have their own family. 

The cash value within the Child Plan ™ compounds tax-free throughout their life and is guaranteed.

Child Plan ™ includes permanent life insurance that grows throughout your child’s life for future generations.

Unlike the RESP, you are not required to transfer the Child Plan ™ to your child when they reach the age of 18. It is entirely the parents’ option that if they feel it is in their child’s best interest they can postpone transferring the child plan to their child until the age they feel the child would be ready to manage this investment.

Find out more about Child Plan ™ and how this Whole Life insurance plan will cover your child permanently. 

Conclusion

Parents always want the best for their children. The best way to ensure success in their future is prevention and saving. 

Since 1998, Canadian parents have only been offered the RESP  for their children’s future. There are many different options and opportunities that you can learn about in order to make the best decision for your children and their future.

Child Plan ™ is an excellent alternative to the RESP because we don’t know what our children will want to do or what their passions will be when they are 18 and we want to make sure they have the freedom to choose their own path and not be dictated by a government as to what they should do 

Start supporting their dreams today and be proud that you are preparing a better future for your child. Request a personalized Child Plan illustration and get a customized savings plan for your child to help ensure a better future.

FAQ

Is there a penalty for over-contribution?

Yes, if contributions exceed $50,000, there is a 1%/month tax applied to the over-contribution. This continues until the amount has been withdrawn. 

How much does the government contribute?

The government matches 20% of RESP contributions through the CESG up to a maximum of $500 per year until your child is 17. The maximum CESG grant you will receive is $7200 if you deposit $36,000. If you contribute over $36,000 you do not get any additional benefits. This amount will be deposited as long as the financial institution reports the RESP contributions.

How does the CESG affect my RESP contribution?

The CESG is added to your RESP contribution and is credited directly to your child’s RESP account so it does not affect your RESP contribution limit. 

Can I have more than one RESP?

There are no limits on the number of RESPs that you can open. However, there is a maximum annual amount you can contribute to an RESP. You can’t open two RESPs and deposit $2500 in each with the hope the government gives you two times the $500 matching CESG grants since all banks and group RESP companies report how much you contributed.  

Each beneficiary (child) account has a  limit of $50,000 so if you have multiple people opening RESPs for your child, make sure they all coordinate with each other on how much each should deposit or you run afoul of the government rules.

Does my child receive a tax-free annual dividend for life with Child Plan ™?

Yes, they receive starting year one a tax – free dividend every year for life.

Are there any conditions when my child wishes to use the cash value for their education?

No, there are no government restrictions when your child wishes to use the cash value for their education or for any education programs they wish to pursue.

When can I transfer my Child Plan ™ to my child for their use?

Unlike the RESP, you are not required to transfer the plan and the entire cash values to your child at 18. If you don’t feel your child would use the money you saved wisely, you can hold off transferring it to them until you feel they would be mature enough to manage the investment.

To learn more about Child Plan ™, please visit insuranceforchildren.ca.

Sample illustration of Child Plan™ Cash and Insurance Values

Based on a Monthly Deposit of $250 per month

Age Accumulated Cash Value Life Insurance Value
20 $82,568 (Education) $612,728
35 $177,953 (House) $1,115,297
45 $303,299 (Security) $1,115,297
65 $834,276 (Retirement) $1,666,824

Sample illustration is based on a monthly contribution of $8.32 a day/$250 a month for twenty years, starting when the child is less than 1 years old. Cash and life insurance values are based on the current dividend interest rate of 6% from a Canadian life insurance company. This example is strictly for illustrative purposes only, the annual dividend scale is not guaranteed and values may differ.

Personalize Your Child Plan™

Request a Child Plan™ Illustration and see how much cash value your child will have for their education and for life.

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*illustrations are reflective of the annual premium amount

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