Contributions to RESP accounts have helped millions of Canadians attract government grants and tax advantages since 1998.
The federal government and provincial governments provide grants to RESP accounts to help save for children’s post-secondary education at eligible schools.
But like other registered accounts out there, RESP also has its unique contribution and withdrawal rules you need to be aware of.
If you have an RESP account or are about to open one, knowing the contribution deadline will help you maximize your benefits.
Here I discuss everything you need to know about the RESP contribution deadline with practical tips on how to maximize your RESP contribution.
Let’s start with an overview of what RESP is.
Overview of RESP
A Registered Education Savings Plan (abbreviated as RESP) is a tax-advantaged account designed for saving for the post-secondary education of eligible children in Canada.
After opening an RESP account with your bank, credit union, investment dealer or any eligible RESP provider, you can start contributing to the account to attract government grants.
The first $2,500 annual contribution to an RESP account will attract $500 through the Canada Education Savings Grant (CESG). The $500 represents 20% of your initial contribution. Each of your eligible children will receive a maximum lifetime CESG of $7,200.
Depending on the number of eligible children in your family and your family net income, each of your qualified children can also receive up to $2,000 as a Canada Learning Bond (CLB).
In addition to federal grants, you can also receive provincial grants depending on your province of residence. Below are some of the provincial grants on RESP:
- Saskatchewan Advantage Grant for Education Savings (SAGES)
- Quebec education savings incentive (QESI)
- BC Training and Education Savings Grant Program (BCTESG)
That said, your RESP contributions are tax-free even on withdrawal. On the other hand, your investment earnings and grants (called educational assistance payments (EAPs)) are taxable upon withdrawal.
Should your child graduate from a high school and decide not to pursue a post-secondary education, you can either replace the child or transfer/move your investment/earnings to your RDSP/RRSP.
Else, you will be required to repay all the earned government grants and bonds in addition to paying taxes on your investment returns.
- 7 Things to Know About Registered Education Savings Plan (RESP)
- How Much Should I Put In My RESP Per Month?
- Are RESP Contributions Tax Deductible?
Understanding How RESP Contribution Works
Before we discuss the RESP contribution deadline, we need to first understand how RESP contribution works.
Beginning from the year RESP started (1998) to 2016, the government set RESP contribution limits annually.
But starting from 2017, the annual RESP contribution limit was eliminated and replaced with a lifetime maximum contribution limit of $50,000 per child.
With this change, the government only requires you to make an initial $2,500 each year to receive the $500 CESG per eligible child for the current year. Remember, each eligible child is entitled to a maximum lifetime limit of $7,200 CESG.
In a situation where you haven’t claimed the government grant in the previous year, you can catch up by contributing up to $5,000 in the current year to receive a total of $1,000 CESG. In other words, you can make up for missed contributions one year at a time.
Even though there’s no limit on how many RESP accounts or beneficiaries you can have, the maximum amount you can contribute per child RESP is $50,000.
There’s a 1% monthly tax charge on RESP contributions that exceed the $50,000-lifetime limit. The tax or penalty remains until you withdraw the excess amount.
Learn more: RESP Contribution Limit
RESP Contribution Deadline
Officially, there’s no RESP contribution deadline, unlike other registered accounts. This is because the contribution limit is no longer set annually, but for a lifetime. With this, you have the flexibility to contribute as much as you want at any time for up to 31 years.
But since the government grants are administered annually based on your initial $2,500 contribution, it’s wise to contribute by December 31 of each year to get the grant.
Based on this consideration, the 2023 RESP contribution deadline falls on Sunday, December 31, 2023.
However, contributing the $2,500 earlier than December 31 will help you claim the government grant sooner, earning more interest and dividends on your RESP investment.
In what follows, I provide practical tips to help you make fast RESP contributions and maximize your benefits.
4 Tips For Meeting the RESP Contribution Deadline
December 31 is the unofficial RESP contribution deadline. Even though you can claim unused RESP grants of the previous years, claiming the grant faster will help you to earn more interest and dividends on your RESP account.
So how do you beat the unofficial RESP contribution deadline? Let’s find out.
1. Automate the Contribution
Automating the RESP contribution means that the contribution will be automatically made on your behalf without your involvement.
The process is so easy as it only involves setting pre-authorized payments from your bank, credit union, investment dealer, or any eligible RESP provider.
Besides helping you claim the government grant faster, auto-contributions also help you avoid over-contribution as it will stop once the lifetime contribution limit is reached.
To contribute the maximum amount of $2,500 needed to get the full CESG Grant of $500, you can setup pre-authorized payments of $208.33 per month. Set it up once and it’s completely hands-off subsequently.
2. Inform Your Contributors
Do you have people that help contribute to your child’s RESP? It could be grandparents, friends, relatives, or a charity organization.
Regardless of who your contributors are, you need to be on the same page when it comes to contributing to your child’s RESP.
You should educate them about how the RESP contribution works and the implications of over-contributions.
If possible, you can suggest to them to also set up automated contributions to help you make quicker contributions and avoid over-contribution.
3. Focus on Claiming the Annual Grant
The fact that the maximum lifetime contribution limit is $50,000 doesn’t mean you must hit it before maximizing your RESP.
If you calculate how long it will take you to claim the $7,200 maximum CESG per child, you will realize that you have approximately 14.4 years.
What this means is that contributing approximately $36,000 is what you need to max out the government grant per child.
With this in mind, you will have the flexibility to keep contributing to the RESP for up to 31 years, leave it open for up to 36 years, or transfer your funds to another registered account.
4. Time Your Child’s Age
The government administers grants to each eligible child not until they turn 18. But if you have an eligible child that’s 16 or 17 years old, the CESG will be administered only if:
- You contributed at least $2,000 to the child’s RESP and didn’t withdraw it before they turned 16.
- You contributed at least $100 to the child’s RESP and didn’t withdraw it for a minimum of 4 years before they turned 16.
This means that for your child to be eligible for the CESG, you must start contributing to their RESP before they turn 15.
To maximize the CESG, you should start contributing to your child’s RESP as early as possible.
What if You Missed an RESP Contribution Deadline?
It’s not the end of the world. Like other registered accounts, RESP contribution limits can be carried forward to the future.
For example, if you have a carry forward grant in the previous year, you can contribute up to $5,000 in the current year to receive $1,000 CESG. As long as your child is under the age of 18, they can claim an unused basic CESG for the previous years.
The following is the timeline of the maximum annual limit for basic and carry forward contributions with their corresponding maximum CESG since 1998.
|Period||Basic annual contribution limit for CESG||Carry forward contribution limit||Maximum annual CESG|
|1998 – 2006||$2,000||$4,000||$800|
|2007 and beyond||$2,500||$5,000||$1,000|
RELATED: RRSP Contribution Deadline and Limit
Final Thoughts on RESP Contribution Deadline
Maximizing government benefits in Canada requires careful planning and understanding of the rules. RESP is not an exception.
Even though there’s no official RESP deadline and you can claim previous years’ unused government grants in the current year, knowing the grant disbursement and age-based deadlines will help you maximize your RESP.
By automating the RESP contribution, strategizing with your contributors, timing your children’s age, and focusing on the annual government grant, you can make the best of your RESP contributions.
That brings us to the end of this article. If you have any questions or concerns, kindly drop them in the comment section.
Before leaving, ensure you check out our related blog posts to learn more about the best personal financial products and services in Canada.