Saving for a child’s education is a crucial step in ensuring they have a successful future. However, the rising costs of post-secondary education in Canada can make it challenging for families to save enough money to cover tuition, textbooks, and other related expenses. Therefore it is crucial to maximize the help you can get from the government. In this article, I discuss how investing $42 per month in a Registered Education Savings Plan (RESP) can maximize the government’s Canada Education Savings Grant (CESG) and other grants available, as well as the benefits of saving for a child’s post-secondary education.
What is an RESP?
An RESP is a tax-sheltered savings account that is designed to help parents, grandparents, and other family members save for a child’s post-secondary education. The account can be opened at any time, and contributions can be made up to the child’s 31st birthday. The contributions grow tax-free until the funds are withdrawn to pay for education expenses.
One of the main advantages of an RESP is the government grants and incentives available to help families save for education expenses. The most popular grant is the Canada Education Savings Grant (CESG), which provides a matching contribution of 20% on the first $2,500 of annual RESP contributions, up to a maximum of $500 per child each year. Families with lower incomes may also be eligible for additional grants and incentives, such as the Canada Learning Bond (CLB) or provincial grants.
The following table is copied from the CRA website. It summarizes the CESG benefits. For families earning less than $50,197, the government matches 40% for the first $500. For families earning between $50,197 and $100,392, the government matches 30%. For families earning more than $100,392, there is not additional CESG grant, just the basic 20% CESG grant.
| Adjusted family net income for 2022 | $50,197 or less | more than $50,197 but less than $100,392 | more than $100,392 |
|---|---|---|---|
| Additional amount of CESG on the first $500 of annual RESP contributions | 20% = $100 | 10% = $50 | Beneficiary is not eligible |
| Basic CESG on the first $2,500 of annual RESP contributions | 20% = $500 | 20% = $500 | 20% = $500 |
| Maximum yearly CESG depending on income and contributions | $600 | $550 | $500 |
| Lifetime maximum CESG for which you may qualify | $7,200 | $7,200 | $7,200 |
Benefits of saving for a child’s education
Investing in an RESP and saving for a child’s education provides several benefits, including:
- Reducing the financial burden of post-secondary education: By saving for a child’s education, families can reduce the financial burden of post-secondary education and ensure their child has access to the best possible education.
- Taking advantage of government grants and incentives: By investing in an RESP, families can take advantage of government grants and incentives to maximize their savings and ensure they have enough money to cover education expenses.
- Tax-free growth: Contributions to an RESP grow tax-free, which means families can maximize their savings and ensure they are putting their money to work for them.
- Flexibility: An RESP provides flexibility in terms of the amount of money families can contribute and when they can withdraw the funds to pay for education expenses.
Why Investing $42 per month in an RESP to maximize the CESG
To maximize the CESG, families must contribute at least $2,500 annually to an RESP. However, this is difficult for many families. However, for families earning less than $100,392, first $500 get the most contribution from the government. This means that investing $42 per month, or $504 per year, is sufficient to maximize the basic CESG grant of $500 per child. By doing so, families can take advantage of the full amount of government grants available and ensure they are saving enough money to cover education expenses.
It’s important to note that the CESG is only available until the end of the calendar year in which the child turns 17. After that point, families can still contribute to an RESP, but they will not receive the CESG. Therefore, it’s essential to start saving early and contribute consistently to ensure families can take advantage of the full amount of government grants available.
Summary
Investing in an RESP and saving for a child’s education is a wise financial decision that can have a significant impact on a child’s future. By investing just $42 per month, families can take advantage of the government grants available and ensure they are saving enough money to cover education expenses. With the rising cost of post-secondary education in Canada, it’s essential to start saving early and contribute consistently to an RESP to ensure families can take advantage of the full amount of government grants available. In addition to the financial benefits, saving for a child’s education can reduce the stress and burden of post-secondary education expenses and provide peace of mind for families. Investing in an RESP is a smart investment in a child’s future and can help them achieve their full potential.
