Every year you let pass means it will be more difficult to maximize the government grant. By the time your child turns 10 that could mean missing out on some of the $7,200 lifetime allowed per child.
Garry Marr | You don’t have as much time as you think to contribute to a Registered Education Savings Plan.
While there’s no hard deadline on when you can put money into an RESP, Dec. 31 is an important date to mark on the calendar because if you haven’t made a contribution by then, you’ve let another year slide.
Every year you let pass means it will be more difficult to maximize the government grant. By the time your child turns 10 that could mean missing out on some of the $7,200 lifetime allowed per child.
If that’s not enough to convince you, the provinces are quickly jumping into the educational savings fray with their own matching grants and their money is tied to contributing to the federal plan. Three provinces provide a top up and a fourth is about to up the ante by offering a $1,200 one-time grant starting in 2015.
You can definitely run out of time and most people don’t know that
“You can definitely run out of time and most people don’t know that,” said Robert Armstrong, who is head of managed solutions in the global structured investments group of BMO Global Asset Management.
Ottawa pays a generous 20% on every dollar you put into an RESP, up to $500 per year per child until you reach the lifetime maximum. A contribution of $2,500 gets you $500 but the government also lets you go back one year for unclaimed grant money.
If you didn’t make a contribution in 2013, you can put $5,000 in this year and get $1,000. In essence, you can only claim two years of contributions at a time. You can also only collect grants up until the year in which your child turns 17. But there’s a rule that says if you’ve contributed basically nothing by 15, you can’t get any grant money in year 16 or 17.
“You really want that grant money,” said Mr. Armstrong, adding that 20% return will always make the RESP as competitive as a registered retirement savings plan or tax-free savings plan.
The idea is the money will eventually be taxed in your child’s hands when they are a low-income student. It can be withdrawn as long as the child is in a post-secondary institution and the government has gotten very flexible on what qualifies as a school.
While you might wonder if your child will go on in school, it’s worth considering there’s been virtually no job growth over the past decade for people who only have high school degree. The government of Canada has said up to two-thirds of all jobs now require some form of post-secondary education.
RESP holdings have grown massively since the grant was introduced in 1998. That first year, there was only $4-billion in all RESP accounts, today it is 10 times that amount. In 2014, families are expected to contribute up to $4-billion alone.
Now the provinces are involved in making the RESP plan even more attractive. Alberta’s Centennial Education puts $500 into any RESP plan for every child born to a resident in Alberta in 2005 or any subsequent year. Another $100 is contributed at 8, 11 and 14.
Quebec and Saskatchewan both match 10% of any dollars contributed with the maximum lifetime grant of half of the $7,200 the federal government kicks in.
British Columbia is introducing a program that will give $1,200 to every child born in 2007 or after if they are in an RESP. The payments can start as early as the sixth birthday but the child has to be in an RESP by the ninth birthday to qualify.
Peter Lewis, vice-president of regulatory and corporate affairs CST Consultant, says the governments want to see Canadians enroll their children early on. “The real deadline is you really want to be started before your child is nine,” he says.