Two Little Known Facts About RESPs!
OR
Are You Leaving Government Contributions On The Table?
Registered Education Savings Plans (RESPs) have been around for years, but really became quite popular in 1998 when the government Increased the annual deposit limit to $4,000, and Added 20% to the first $2,000 of annual contribution made to an RESP.
You might say – Bill and Ralph, that is old news. Yes, but:
Did you know that any unused government contribution of $400/year (20% of $2,000) can be carried forward to a future year?
For example, if a contribution is not made in one year the grant could be as much as $800 in the following year. The following table is an example of an RESP started in 1998.
| Year | Amount For
Maximum Grant | Grant
Available | Actual
Deposit | Actual
Grant |
| 1998 | 2,000 | 400 | 1,000 | 200 |
| 1999 | 2,000 | 400 | 1,000 | 200 |
| 2000 | 2,000 | 400 | 2,000 | 400 |
| 2001 | 2,000 | 400 | 700 | 140 |
| 2002 | 2,000 | 400 | 500 | 100 |
| 2003 | 2,000 | 400 | 600 | 120 |
| 2004 | 2,000 | 400 | 1,000 | 200 |
| Total | 14,000 | 2,800 | 6,800 | 1,360 |
In this case, $1,440 of government grants can be caught up with additional deposits into the RESP at the maximum rate of $4,000 per year.
Did you know that you can obtain the government grant back to 1998, even though you may not have started the RESP until after that date?
Let’s take that same table above, but assume that the child was born before 1998 but the RESP was not started until 2003:
| Year | Amount For
Maximum Grant | Grant
Available | Actual
Deposit | Actual
Grant |
| 1998 | 2,000 | 400 | | |
| 1999 | 2,000 | 400 | | |
| 2000 | 2,000 | 400 | | |
| 2001 | 2,000 | 400 | | |
| 2002 | 2,000 | 400 | | |
| 2003 | 2,000 | 400 | 600 | 120 |
| 2004 | 2,000 | 400 | 1,000 | 2000 |
| Total | 14,000 | 2,800 | 1,600 | 320 |
This is a little more dramatic example – in this case there is $2,480 of government grants that can be caught up with extra contributions to the RESP.
How about the child born in 2000, but the RESP is only being established this year?
Take the above table, and a pen and do your own math! If you arrive at $2,000 of government grant available – you’ve got it!
Why is this possible?
There is any number of reasons that could limit the amount of a deposit made into RESPs for a child or grandchild in a given year. The government recognized this, but at the same time wanted to encourage parents and grandparents to save for their child or grandchild’s education. Therefore catch-up is allowed during the accumulation phase (to the child’s age 18) to a maximum lifetime grant of $7,200 per child (18 x $400).
Are You Leaving Government Contributions to an RESP On The Table?
