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RESPs and the Savvy Grandparent Thumbnail

RESPs and the Savvy Grandparent

The cost of university has risen sharply, and so has the importance of graduating with a desired and marketable set of skills and knowledge.  Without a post-secondary education, employment and life opportunities are more limited now than ever before.  Contributing to a grandchild’s education helps them and their parents and helps you stay connected in a meaningful way.

Most grandparents are unaware that the total cost of a year at a Canadian university in 2023 is about $25,000, or $100,000 for a four-year degree.  This includes:

  • tuition,
  • books,
  • supplies,
  • residence/housing,
  • meals,
  • travel,
  • and that $125 hoodie to proudly represent their university, faculty or program.

Registered Education Savings Plans (RESPs) began in their current form in 1998 when government grants were introduced.  The adult children of new/future grandparents were likely too old to participate fully.

If you want to conscientiously pass wealth between generations and help minimize your children’s and grandchildren’s debt in the future, opening and contributing to an RESP on behalf of your grandchildren is an excellent option. This long-term financial planning is something the LGK team can help you organize.

What You Need to Know

The basics of an RESP are:

  • A grandparent can be a “subscriber,” and the future student is the “beneficiary” of an RESP.
  • The lifetime contribution limit is $50,000 for each beneficiary (i.e., grandchild).
  • There is no limit to the number of RESPs that a beneficiary can have, but they cannot exceed their lifetime limit of $50,000 without penalties being incurred.
  • Canada Education Savings Grants (CESG) with an annual maximum of $500 (equal to 20% of the contribution) have a lifetime limit of $7,200.
    1. Many subscribers deposit $2,500 yearly—to maximize the CESG each year!
    2. A catch-up for missed years of up to $1,000 of CESG per year can still be achieved.
    3. And there's the Canada Learning Bond (CLB) for colleges, CEGEPs (exclusive to Quebec), and apprentice programs that could be $500 in the first year and $100, thereafter.
  • Funds can be invested in a number of different vehicles and grow tax-free, like an RRSP.
  • Money is paid out as an Educational Assistance Payment (accumulated gains and grants) and are taxed in the hands of the beneficiary.  The beneficiary/student typically pays little or no income tax with their education-based deductions and tax credits as well as lower income.
  • The principal is returned to the subscriber as a “return of capital” without any tax implications and is typically delivered to the student as part of the accumulated savings.

Bottom Line

If you’re concerned about your children funding post-secondary education for your grandchildren, contributing to an RESP on their behalf is an excellent solution. A comprehensive financial plan can help make your grandchildren's dreams, whatever they may be, a reality. Reach out to our financial advisors by email at LGKWealth@gmail.com or call (780) 426-2600 to discuss RESPs.