September 13th, 2023

How grandparents can use RESPs to open doors of opportunity

A great deal of financial success comes down to executing the basics well. In this series called Investing Basics, we review some of the fundamental tools that can help you and your family build and protect wealth over time. In this installment: the power of RESPs, especially for grandparents.

Many grandparents are unaware that the total cost of a four-year degree at a Canadian university in 2023 is about $100,000. This includes tuition, books, supplies, housing, meals, travel and $125 for the traditional sweater to represent their university, faculty or program.

The cost of university has risen sharply, and so has the importance of graduating with a 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 can open doors of opportunity and help you stay connected in a meaningful way.

Registered Education Savings Plans (RESPs) began in their current form in 1998 when government grants worth up to $7,200 per child were introduced. If you are a grandparent today, this program may not have been in place when your children were still looking forward to post-secondary education.

How you can use an RESP now

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.

Here’s what you need to know:

  • You are the “subscriber” and the student is the “beneficiary” of an RESP
  • The lifetime contribution limit is $50,000 for each beneficiary
  • 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
  • You can receive Canada Education Savings Grants (CESG) worth up to $500 per year (equal to 20% of the contribution) and a lifetime limit of $7,200
  • Many subscribers deposit $2,500 per year to maximize this grant
  • A catch-up for missed years of up to $1,000 is permitted
  • You may also qualify for a Canada Learning Bond (CLB) for colleges, CEGEPs and apprentice programs of up to $500 in the first year and $100 per year thereafter
  • Funds can be invested in an investment portfolio of your choice and grow tax-free, like an RRSP
  • Money is paid out as an Educational Assistance Payment and taxed in the hands of the beneficiary. In practice, most students pay little or no income tax because of their education-based deductions and credits, and their relatively low total income.

Speak to your Cumberland Portfolio Manager

If you’d like to contribute to the post-secondary education expenses of a grandchild, speak with your Cumberland Portfolio Manager. We can help you open the account, devise the right funding strategy, set up an appropriate investment portfolio, and take care of applying for and collecting government grants on your behalf.