RESP’s and Grandparents

Author:  Brenda McCrae   |   Articles, General, Investing

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, and meals, travel and a $125 hoodie for 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.

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
  • Many subscribers deposit $2,500 each year, to maximize the CESG each year
  • A catch-up for missed years of up to $1,000 of CESG per year can be achieved
  • Canada Learning Bond (CLB) for colleges, CEGEPs 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) 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, and lower income.
  • The principal is returned to the subscriber as “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. Invest in your grandchildren’s dreams!

Brenda McCrae

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About the Author

Brenda McCrae is a Wealth Advisor with Assante Capital Management Ltd. and an Insurance Advisor with Assante Estate & Insurance Services. Please contact her at (519) 752-3155 to discuss your particular circumstances prior to acting on the information above.

Assante Capital Management Ltd. is a Member of the Canadian Investor Protection Fund and Investment Industry Regulatory Organization of Canada. Insurance products and services are provided through Assante Estate and Insurance Services Inc.

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