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Maximizing Your Child's Future: The Power of RESP Accounts in 2023

Updated: Dec 7, 2023

As a parent or grandparent who wants to ensure that your children or grandchildren have every opportunity to succeed in life, you recognize a key component of this is a quality education or training program. But with the rising cost of tuition and other educational expenses, planning for their future can be a daunting task. That's where the Registered Education Savings Plan (RESP) comes in. In this article, we'll explore the incredible power of RESP accounts and how they can maximize your savings for your loved one's education, including updates on what has changed for RESP accounts in 2023.

Understanding RESPs

A Registered Education Savings Plan (RESP) is a tax-advantaged savings and investment account designed specifically to help Canadian families save for their children's or grandchildren's post-secondary education. The government of Canada encourages RESP contributions through the Canada Education Savings Grant (CESG), which can significantly boost your savings over time. The Canada Learning Bond provides an additional incentive of up to $2,000 to help low-income families start saving early for their child’s education. Contributions are not required by those who are eligible for the Canada Learning Bond.

There is no annual contribution limit, however the lifetime contribution limit per child is currently $50,000. You can make contributions into a RESP until 31 years after the account was first opened. You then have until the end of the 35th year to use the funds before the RESP expires. A more typical way to utilize the account is to make contributions until your child reaches age 17 because it coincides with the CESG being available until the end of the calendar year that the child turns 17. Anyone can be a subscriber and open an RESP for a child. This includes parents, guardians, grandparents, other relatives and friends, so long as the beneficiary is a Canadian resident and has a Social Insurance Number (SIN). The subscriber can also choose to make contributions.

The Power of the CESG

One of the most compelling features of an RESP is the CESG, which matches your contributions up to the lifetime grant limit of $7,200. As of 2023, the government continues to provide a 20% grant on the first $2,500 contributed annually, per child, until the beneficiary turns 17. This means if you contribute $2,500 per year, you'll receive an additional $500 each year from the government in the form of the CESG. If you start when the child is a bit older, no problem. You can make up previous year’s CESG, one year at a time until you catch up. For example, if you start at age 5, you can contribute $5,000 (this year plus one year catch up) and be eligible for $1,000 CESG. You can repeat this each year for 5 years (the child’s age) or until you reach the maximum $7,200 CESG allowed.

What is the Best Way to Fund the RESP?

There are multiple strategies for how to fund and grow the RESP account. Determining which one is most suitable for you and your situation requires consideration of several factors including, but not limited to, your ability to do a large lump sum contribution, how many children you are saving for, what you are investing in and ultimately what your goals are for how you want to support your child in this way. Here are a few examples, all assuming a 6% rate of return and starting the year the child is born.

Strategy 1 ~ Minimum contributions to maximize CESG

Strategy 2 ~ Front Load the Maximum $50,000 Contribution

Strategy 3 ~ Front Load and Maximize CESG

What if my Child Doesn’t Use the RESP for Education?

In the event the funds in the RESP are not used as intended, there are four options:

  1. Keep the RESP open and wait and see. You can enjoy continued growth on your funds and not be in a rush to make a decision the moment your child says they want to work for a while instead of going straight to post secondary. The account can be open for 35 years so there’s no rush and you can keep your options open. Who knows, things can change.

  2. Replace the beneficiary. There are rules around this option, however generally speaking you can name another beneficiary, such as a sibling.

  3. Transfer the funds to another registered account and continue growing your money on a tax deferred basis. Although in this case grant money would need to be returned to the government, you can transfer to an RRSP (Registered Retirement Savings Plan) or an RDSP (Registered Disability Savings Plan).

  4. Close the RESP. Your contributions will be returned to you tax free, the growth you earned will be returned to you and will be taxed at your regular income level plus an additional 20%. Grants and bonds would be returned to the government.

RESP Updates for 2023

In 2023, there have been a few noteworthy changes to RESP rules that can benefit you and your child's education savings:

Increased Withdrawal Amounts

One significant update is that the maximum withdrawal amount has increased from $5,000 to $8,000 for full time students and from $2,500 to $4,000 for part time students.

Enhanced Flexibility

Divorced and separated parents can now open joint RESPs for their children. It used to be that only married or common-law spouses could open a joint RESP.

Fast Tips for Maximizing the Benefits of an RESP

Start Early

The sooner you begin contributing to an RESP, the more time your investments have to grow.

Maximize CESG

Contribute at least $2,500 annually to receive the full CESG amount. Missing out on these government grants means leaving money on the table.

Invest Wisely

Choose suitable investments that align with your risk tolerance and long-term goals.

In conclusion, RESP accounts remain a powerful way to invest in your loved one's future, and the changes in 2023 only enhance their value. If you have any questions or need assistance with setting up an RESP account or understanding other important factors such as types of withdrawals that can be made, taxes and transfers, don't hesitate to reach out to our experienced financial planning team. Together, we can build a brighter future for your children or grandchildren, ensuring they have the resources they need to succeed in their educational journey.


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