RESP carryforward rules
Back in 1998, the government enhanced RESP contributions by introducing the Canada Education Saving Grant. Basically for every dollar contributed to an RESP up to a maximum of $2000, the government would contribute 20% into the RESP. In 2007, the government increased the maximum contribution eligible for the CESG from $2000 to $2500 per child.
Being a father of 4 children, it is really tough to contribute the maximum amount each and every year. The good news is there is no requirement to contribute the maximum amount into RESPs every year because every Canadian child under 18 accrues a CESG entitlement each year, retroactive to 1998.
In my case, my oldest son Robbie was born in December 2003 and unfortunately we did not open an RESP before the end of the year. Thankfully, we did not lose the opportunity to contribute for 2003 and qualify for the 20% Canada Education Savings Grant. In the following year, we contributed $4000 to the RESP and got a CESG of $800 because the amount from 2003 was carried forward.
We made contributions of $2000 in 2005 and 2006 to Robbie’s RESP. Remember In 2007, the government increased the contribution limit eligible for the CESG to $2500 from $2000. In 2007, we contributed $2500 and got $500 for the CESG.
For 2008, 2009, and 2010 we did not contribute to the RESP because we were building a house and our family income was considerably lower for a bunch of reasons. The good news is although we did not contribute for those 3 years for Robbie, we could still make up those contributions in 2011 and in future years because the amounts carry forward. The catch is we can only catch up one year at a time.
One year at a time
The rules state that there is no annual limit but there is a lifetime limit of $50,000 per child. On that basis, I could contribute $7500 to the RESP but I would not get the CESG on the entire $7500 contribution. For the RESP, you can only make up the past carry forward amounts one year at a time.
Ideally, to catch up on Robbie’s RESP, I should contribute $5000 in 2011 which would be eligible for the $1000 CESG. In 2012, I could once again contribute $5000 and then in 2013 I could contribute another $5000 to fully catch up on the three years I missed and still collect the $1000 per year CESG. Here’s a little spreadsheet I put together to track Robbie’s RESP contributions:
|Year||Age||Contribution Limit||Actual Contribution||CESG|
Are you confused? It took me a while to sort that all out but my real problem is not figuring out the carryforward rules, it’s finding the money to maximize the RESP for 4 kids. That’s $10,000 per year I can put into RESPs.
Rules for age 16 and 17
Another important factor to keep in mind is to not wait too long to contribute and catch up on RESP contributions to take advantage of the government grant (CESG). Because you can only catch up on the CESG grant one year at a time, if you wait till till your child is a teenager, you may not have enough time to take advantage of all the CESG money.
Also, there are specific rules for children that are 16 and 17. In order to be eligible for the CESG, children that are 16 or 17 must meet at least one of the following conditions before the end of the calendar year they turn 15::
- at least $2,000 is contributed to (and not withdrawn from) the RESP or
- a minimum annual contribution of $100 is made to (and not withdrawn from) the RESP in any four previous years
Other great articles on RESPs
The INs and OUTs of RESPs and CESGs on MapleMoney.com
Lots to Know about RESPs