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Understanding the new RESP (canadian) |
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by lilysmom  (March 2007) (rank 500+) |
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The 2007 budget is out, and it brings a few changes to RESPs.
- The $400 government grant cap has been raised to $500. The grant is 20% of contributions, per year. That means that parents who have been putting $2000 a year into their child’s RESP to get the maximum grant money ($2000 X 20% = $400) should increase their contributions to $2500 to continue to maximize on the grant ($2500 X 20% = $500).
- The $4000 a year maximum contribution limit is gone, and the maximum lifetime contribution has been raised to $50 000 from $42 000.
- But just because the cap is gone and you have a bunch of money saved to put into the RESP, it doesn’t mean that you should put it all in at once. You will lose out on the CESG (Canadian Education Savings Grant) money that you could be getting by spacing out your contributions. IE $50,000 put in all at once will only get you $500 in grant money (they won’t credit you with additional CESG payments), where as $50,000 spaced over 10 years will get you $7000 in grant money.
- On the flip side, if you haven’t been putting in enough money to take advantage of the full CESG amount, now would be the time to top up, they will pay up on backdated contributions, up to $1000.
- The maximum CESG amount hasn’t changed from $7200. That means that the total amount of government grant that you can get per child is $7200 in a lifetime.
RESPs can grow tax-sheltered (meaning you don’t have to pay taxes on the interest earned until it is take out) and the child is taxed when they take it out. Students usually pay little or no income tax. You don’t get a tax grant with RESPs the way that you do with RESPs, but they are still a very good idea if you plan on saving for your child’s post-secondary education.
