RESP contribution rules
When it comes to putting money into an RESP, it is very important to know the RESP contribution rules. The rules are complicated and somewhat confusing but I will do my best to try and help you understand how they work.
It’s all about the Canadian Education Savings Grant (CESG).
The CESG is 20% of every eligible contribution to the RESP to a maximum grant of $500. That essentially means you can put in up to $2500 to maximize the government grant at $500. Prior to 2007, the grant maximum was lower at $400 per year per child which meant you could only put in $2000 per year into the RESP.
The CESG limit can be carried forward if not used. In fact, each child, resident in Canada, began to accumulate grant contribution room since January 1st, 1998. For example, if Cassie was born in 1998 but did not have an RESP until 2002, she will have accumulated a total of $10,000 ($2,000/yr x 5) in grant contribution room by the end of that year.
Catching up on the CESG one year at a time
That being said, the rules only allow Cassie to catch up on the carry forward of the CESG one year at a time. For example, Cassie’s parents could put in $4000 for 2002, which will qualify for the CESG for 2002 and also the previous year 2001. The government would have contributed $800 on the $4000 contribution. In 2003, her parents could contribute another $4000, which will qualify for the 2003 CESG and the 2000 grant. By 2005, the parents would have caught up on the unused CESG credits. They would have put in $16,000 from 2002 to 2005 and the government will have put in $3,200 of CESG.
In 2007, the CESG limits were increased to a maximum of $500 which means that contributions to the RESP could increase from $2000 to $2500 to maximize the grant money.
The lifetime CESG limit
Not only are there different rules for the annual limits and the catching up rules, there is also a lifetime limit of $7200 of CESG per child/beneficiary. Essentially if you maximize the grant every year ($500 per year), you will reach the lifetime limit in the 15th year. You can still contribute to the RESP after that but you will not get any more grants beyond the $7200 lifetime limit.
RESP contribution limits are not the same
Although the maximum contribution limit from all subscribers to each beneficiary eligible for the Canada Education Savings Grant is $2,500 per calendar year, you can actually contribute more than that to the RESP every year.
Also, If you are catching up on contribution from previous years, you can actually contribute more than $5000 per year to the RESP but any amount greater than $5000 will not be eligible for the CESG. In most cases, it doesn’t really make sense to put more than $5000 or $2500 into the RESP unless you have already maximized the $7200 lifetime CESG.
The lifetime RESP limit
Remember that the lifetime CESG limit is $7200. The RESP also has a lifetime maximum limit of $50,000. Of this $50,000 lifetime contribution limit, only $36,000 would qualify for the 20% CESG grant before maximizing the $7200 limit.
Is there any advantage contributing more than $36,000 into the RESP if you will not get the 20%? Remember that the contributions can always be withdrawn tax free and if the child goes to a qualifying school / program, the growth is taxed in the hands of the child.
You can have more than 1 RESP
You can have as many RESPs as you want but regardless of the number of plans, the limits apply to each beneficiary. So, for example, if a parent and a grandparent each wanted to set up an RESP for their child or grandchild, the total amount that can be contributed by both subscribers each year is still $5,000. There must be some communication within a family to make sure that the $5,000 limit per year and the $50,000 lifetime limit are not exceeded.
Penalty tax on over contributions
An over contribution is any amount that exceeds the maximum lifetime limit of $50,000.00.
If contributions are made in excess of the $50,000 lifetime limit, any excess contributions will be subject to a penalty tax of one per cent per month of the amount of the over contribution at the end of that month.
Contribution maximums are set per beneficiary, not per plan.
As you can see there are many different RESP contribution rules to be aware of. Talk to a qualified advisor of you need help sorting through these RESP contribution rules
For more information on RESP rules, check out my online Guide to RESPs
Are you aware of how to invest funds received by a minor as a beneficiary from a grandparent can be invested in a RESP for the minor? I have discovered how this can be done and you should be telling your readers how this can be done. Unless it is done the way I discovered Provincial Child Trustee will not accept an RESP as an acceptable investment by the executor because an RESP is not a true Trust.
If you are interested in doing an information article on this aspect of RESP for you readers please advise and we can discuss this further.
Gary at 306-751-4987
One piece of advise I wish I was given at the onset was that if you have surplus funds and are looking for a tax free investment vehicle, consider investing the entire 50K limit per child as early in the cycle as possible. The tax avoidance can be superior to the lost CESG grant money. When your kids are ready for school take back the 50K you invested per child and pass along the investment income to them.
I was searching for info on this. I am at 46K and was debating should I go to 50K. Can you please explain how CESG is lost? Can I not withdraw CESG first? I plan to leave 20K in the account and close the account when my child is 31 and with draw them as contributions.
In family resp can u contribute 5000 for 2 kids and 7500 for 3 etc or is it maxed @ 2500 for family acct, is it treated like one beneficary. Is there a benefit of doing a family acct or should we do individaul accts for each child. Thanx in adv jim.
It’s 2500 per beneficiary so you can definitely create one plan for the all the kids and any more that may be on their way.
TJMachado, I found your reply to Mathieu confusing. You’re saying “you can create one plan for all the kids,” but didn’t you mean to say “create one plan for EACH of the kids,” such that each child has their own individual account? It’s just that you seemed to be saying two contradictory things in one short sentence. My understanding is that each child is a separate beneficiary, eligible for the annual government contribution of $500, representing 20% of a $2500 parental deposit, to a lifetime maximum of $7200 in government contribution per child. If I’ve mis-read what you were saying and you did intend to recommend a single “family account” for, say, a family with 3 kids, then perhaps you can explain this in more depth.
@Jennifer, apologize for the confusion. I meant one family plan with multiple beneficiaries. Given the life of a plan is 35 years it will reduce some of the administration overhead assuming the kids are conceived in a relatively tight timeframe 🙂
Thanks for sharing RESP information.
Can someone clarify my confused state of mind regarding the life time maximum contribution of RESP. Can I contribute all that $50 thousand dollars as a one time lump sum if I have that money? Or it has to be spread out every year until the 50 thousand max is achieved?
Can someone share knowledge regarding RESP Contribution. My friend is a landed immigrant here in Canada together with her daughter aged 10 years old. Can she contribute or payback for those years they’re not in the country yet just to avail of the 20% government grant? Thank you
If lifespan is 35 years could I create RESP for tax sheltering ? Could I put $50k one time amount in for 30 yr old. Then pull it out in 30 years? If so… what would be the tax implication at withdrawal?
is there a minimum amount I must contribute to my kids RESP every year?
A variation I recently heard on the Canadian MoneySaver Podcast, via Colin Ritchie, on the $50,000 lump sum contribution up front is to contribute $14,000 lump sum up front, then contribute the $2,500 annually to get the $500 annual max CESG up to $7,200 for a total contribution of $50,000 over `14/15 years. Easier on the cash flow than $50,000 up front and maximizes the CESG component.
I am depositing $ 2500 per year for my kid, so I am getting $500 as a grant. After 15-16 years my contribution will be $ 36000 and CESG will be $7200.
When he starts going to University and apply for the loan and Grant from OSAP and Canada. Is he will get Grant from OSAP and Canada because at that time my kid will have an amount of $43200. Please reply
The article says: “So, for example, if a parent and a grandparent each wanted to set up an RESP for their child or grandchild, the total amount that can be contributed by both subscribers each year is still $5,000. ”
Based on other sources, I thought the annual maximum had been eliminated.
Up to what age can contributions be made. Is there an age limit or is it just as long
as they are enrolled in a post secondary institution.
I have an registered education savings plan for my granddaughter who is a Canadian citizen, when I opened the account at my bank, she was living in Ontario. Her she along with her family are living in Auckland. This year she graduated and has enrolled at the university of Auckland, her year starts in February 2021. Is she able to withdraw the funds from the account and what If any penalty will we encounter. My bank is telling me that she will lose the grant money and any interest that has accumulated in the account including any interest on my deposits.