If you’ve been saving using an RESP, then your child is eligible for up to $7,200 worth of free money through the Canada Educations Savings Grant (CESG). This grant allows funding for a child’s college education, university education, or even an apprenticeship program. The CESG gives RESP savers across the country the chance to open even more doors for their children!
What is the Registered Education Savings Plan (RESP)?
Before you can enjoy the gift that is the Canada Education Savings Grant, you have to have a Registered Education Savings Plan (RESP). The RESP is a tax-advantaged savings plan available to Canadians, similar to the Tax-Free Savings Account (TFSA) or the Registered Retirement Savings Plan (RRSP). Instead of savings for yourself, however, this plan is designed to fund a child’s post-secondary education.
To learn more about how an RESP works, check out The Registered Education Savings Plan (RESP) explained.
An RESP has a lifetime limit of $50,000, but as of 2007 has no annual contribution limit, which makes it a great option for savvy-saver parents!
Use your RESP to its fullest potential
I was actually surprised with the extra opportunities behind using an RESP. The Canada Education Savings Grant (CESG) and the Canada Learning Bond (CLB) are both fantastic tools to increase your RESP savings. With both combined, you could add up to $9,200 of free money to your Registered Education Savings Plan by the time your child needs it.
Free money is my favourite kind of money. Truthfully, if you’re saving using an RESP and not taking advantage of these options, you’re robbing yourself!
What is the Canada Education Savings Grant (CESG)?
In it’s simplest form, the CESG is a grant from the Canadian government equal to 20% of your annual RESP contributions. Keeping in mind, annual RESP contributions are calculated from July to June the next year!
The grant only takes affect on the first $2500 contributed each year. This means a maximum of $500 per year ($2500 x 20% = $500) can be added to your RESP. Although there is no annual contribution limit for an RESP, there is a limit on how much a child can receive from a Canada Education Savings Grant.
Regardless of contributions, duration, or any other variable, a child cannot be granted more than $7,200 through the CESG.
With $500 per year, it would take over 14 years to reach the limit of $7,200. That’s why it’s imperative for parents to start their RESP early in order to take full advantage of the saving opportunities!
How do I get the Canada Education Savings Grant (CESG)?
Whether a two or one parent household, whether you work or stay at home, the CESG can be used to boost the odds of your child’s success.
The first step, if you haven’t already done so, is to open and contribute to an Registered Education Savings Plan (RESP) account. The best RESP options in Canada are as follows:
Step two is to set up a monthly deposit into your child’s RESP. Regular contributions are essential! Not only does this allow your RESP to be used to it’s fullest potential, but the Canada Education Savings Grant isn’t actually valid until a contribution has been made.
If you’ve already contributed to an Registered Education Savings Plan, congratulations! You’re eligible for the Canada Education Savings Grant! It’s really as simple as that.
At this point, all that’s left is to complete the application form. You’ll need the SIN of both the child and the subscriber, as well as some basic information. Once the application form is filed and approved, the CESG will automatically deposit into your RESP proportional to the contributions you make. There is typically a delay, so expect the CESG to appear in your child’s RESP as long as 2 to 4 weeks after you make your contribution.
How is the Canada Education Savings Grant calculated?
For the purpose of this explanation, I’ll break up the Canada Education Savings Grant into two parts. The basic CESG is available to any RESP contributor and is covered above. This process allows a maximum of $500 to be added to an RESP annually.
If your RESP was started late and you’re hoping to combine the last couple of years worth of contributions, you might be out of luck. Even with carry over the room, the CESG can only apply to the first $5,000 contributed!
Beyond this baseline, lower-income families are offered additional amounts on top of the basic CESG. However, as previously stated, the maximum lifetime amount that can be awarded to a child is $7,200.
Additions to the CESG
Whether or not your child is eligible for additional saving opportunities is based on the adjusted income level of the child’s primary caregiver. This way, children coming from lower-income homes can receive more aid when the time comes for the post-secondary education.
The way the additional contribution options are calculated is a little bit complicated, but this is a quick breakdown:
|Adjusted Income Level|
|More than $93,208||Baseline $500 (20% of the first $2500)|
|Between $46,605 and $93,208||Additional $50 (10% of the first $500)|
|Less than $46,605||Additional $100 (20% of the first $500)|
The basic CESG is a tool to be used by any RESP saver. At this level, the CESG would match 20% of your RESP contributions of up to $2500 annually.
The first $500 of that $2500 can have a percentage added on top of the base 20% if you’re adjusted income is less than $93,208.
If the adjusted income is less than $93,208, but more than $46,605: An additional 10% can be added to the first $500 contributed, resulting in an extra $50 annually.
If the adjusted income is less than $46,605: an additional 20% can be added to the first $500 contributed, meaning an extra $100 annually.
The CESG limit remains the same, regardless of income.
This is just something to keep in mind when considering these lower-income options. The additional $50 or $100 per year simply allows the grant limit to be reached sooner; it doesn’t necessarily mean extra money in the long run. These additions simply help low-income families to reach the maximum amount of their Canada Education Savings Grant, even if they haven’t had the RESP functioning for as long as they maybe should have.
At first, these additions seemed way too small. But with $600 added annually, it would only take 12 years to reach the maximum of $7200! Clearly, an early start is still essential, but the additions definitely make a difference.
The RESP can help protect your family’s wealth
Worrying about your child’s future is stressful enough! If you’re expecting, starting a new family, or even if you’re child’s a few years old already, the CESG can relieve some of that stress. With the dangerously accelerating cost of post-secondary education, parents need all the help they can get to ensure their child’s success. The extra cash that the CESG can add to an RESP can truly make a difference!