Tips & Tricks: How To Get More Money Out of Your RESP

Written by on February 13, 2020 in Stuff with 0 Comments

The cost of post-secondary education in Canada has been rising steadily for the past few years, including tuition fees and housing costs. The tuition fees alone rose by 40 percent over the past decade, necessitating the need to maximize savings of education funds.

It’s no doubt that most Canadian parents save money for their children’s post-secondary education in registered education savings plans (RESPs). However, some of them don’t know how to maximize the benefits of these plans. In this article, we explore the tips to help you take full advantage of RESPs.

6 Ways to Maximize Your Savings in RESPs

One of the best ways to maximize RESP benefits is by selecting a reputable provider like Knowledge First Financial. You can click the link to get more info about the company. Here are the other ways to increase savings in your RESP.

1. Maximize the Government Grants

So far, you may probably know the basics of RESPs, including the government grants. It contributes 20 percent of your contribution as Canada Education Savings Grant (CESG) up to CA$2,500 per year. In other words, your annual grant entitlement is CA$500.

To take full advantage of the CESG, you need to contribute at least CA$2,500 every year until when your child turns 17. You’ll be getting the $500 grant each year. However, the maximum amount of grants you can receive in a lifetime is CA$7,200.

2. Carry Forward the Unused Grant Entitlement

If you fail to contribute the $2,500 to get the $500 grant in a year, you can carry forward the unclaimed grant for use in years to come. That makes it easier to save whatever you can afford and increase the savings amount as your income increases.

However, it may take quite longer to get back on track since the maximum grant payment you can receive in a year is $1000. But if you start saving early, as soon as you get a kid, you can easily get the maximum CESG contribution of CA$7,200.

3. Save up to the Maximum Contribution Limit

The maximum lifetime contribution limit of RESPs is CA$50,000 per beneficiary. While you need only CA$36,000 to get the maximum CESG of $7,200, you can save up to the $50,000 limit to maximize tax-benefits and the compounding growth of investments.

Since education costs are rising every year, you should save as much money as possible without over-contributing. If you contribute more than $50,000 in a lifetime, the government will deduct one percent of the excess amount as a penalty every month.

4. Withdraw Your RESP Money Tax-Effectively

You can structure your withdrawals to reduce taxes. When your children enroll in a post-secondary institution, they can withdraw the cash as Educational Assistance Payments (EAPs). The EAPs are usually taxable but at a low rate because students have no income.

Since the withdrawals of contributions are non-taxable, you can effectively spread them out to pay no tax. Withdraw from your contributions as tax-free post-secondary education payments, leaving the grants and interests gained in the account.

5. Apply for Canada Learning Bond (CLB)

Unlike CESG, the Canada Learning Bond doesn’t require you to make contributions to be eligible. It’s a ‘free money’ that the government adds to RESP beneficiaries coming from low-income families. It should finance only educational expenses after high school.

The government contributes up to CA$2,000 to eligible RESP beneficiaries. That includes the first payment of $500 for eligibility and an additional amount of $100 every year if the child continues to qualify for RESP until they turn 15.

6. Withdraw All Money before End of Post-Secondary Education

The primary objective of RESP is to finance your child's post-secondary education. But if some money remains in the account after completing higher education, the government will take back the remaining grants and allow you to withdraw contributions only.

To avoid such complexities, you can first withdraw all the grants and interests earned as the government applies strict measures against them if your child completes education. If you have other kids, you can transfer the remaining amount into their RESP accounts.

Final Words

Registered Education Savings Plans can be much helpful if you save a significant amount of money. To maximize your savings, you need to implement all the useful tips mentioned above. The best thing to do is to start saving early as soon as you get a child.

You should choose the right amount of money you can afford to contribute consistently to take full advantage of the government grants. The best way to do that is by automating contributions. If you’re struggling to make payments, you can ask friends and relatives to help you contribute towards your child’s RESP account.

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