Grandparent’s RESP Strategy
The Grandparents RESP Strategy might be one of the best gifts you could ever give to your grandchildren. Are you tired of giving the latest toy that only gets played with and after a few hours, the novelty of it is over? Few other gifts will provide the long term benefit than helping your grandchildren attend post-secondary education and graduate with little to no debt. This article provides a basic overview of RESPs and that an RESP can be funded by a grandparent.
Overview
A Registered Education Savings Plan (RESP) helps you save money to fund your child’s future education needs. Your contribution grows tax-free and with the additional 20% matching government grant, the returns are enhanced.
At withdrawal time, when the student attends post secondary education, the withdrawals are effectively tax free (assuming the student has not earned enough income to be taxable i.e. a summer job). Only the growth and the grant portions are taxable as the original contributions were made with after-tax dollars.
Projected Costs
While it’s impossible to know the exact cost of post-secondary education many years out, I ran a simulation using the Macleans Magazine website as they have been providing an annual post-secondary guide for many years. They estimate the one-year university cost to be about $ 19,498.75 or basically $20,000 in today’s dollars. This includes both tuition and room and board off campus.
Illustration: Optimized for Maximum Government Grant
In this illustration, I optimize for maximum government grant i.e. an annual $2,500 contribution by the grandparent which attracts the maximum annual grant of 20% or $500. This grant is referred to as the Canadian Education Savings Grant or CESG.
So in the illustration I assumed the following.
(note: the print out cuts off a few important numbers, so I have listed them below)
- Current amount in RESPs = $0
- Yearly Tuition (current value) = $10,000
- Total amount of contributions to date = $0
- Planned Annual contributions going forward = $2,500
To review the report click the link below.
RESP Savings Calculator – Report
The Results
The total educational cost in future dollars was $153,349.65 and the RESP funded 62% of the cost (a shortfall of $58,104.86).
That’s quite a legacy, all for an annual contribution of $2,500!
Depending upon the parent’s income level other grants may be available but for this article, I wanted to keep it simple.
If you have further questions on the intricacies of an RESP, please don’t hesitate to contact me.
ps..Your children will be appreciative too as there are a lot of costs with a growing family and often the RESP goes on the backburner.
