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.

Back to School – The A,B,C’s of Withdrawing From Your RESP

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: Withdrawing from your RESP

For parents of university students who have been disciplined in saving for a child’s post-secondary education through a Registered Education Savings Plan – congratulations! You can breathe a sigh of relief instead of despair as the tuition statements roll in. While many people are familiar with contributing to an RESP, we don’t necessarily know much about withdrawing from the account. For example, which expenses, other than tuition, are considered to be eligible expenses? Which documentation do we need to provide in order to access the RESP funds? How much can be withdrawn at a time? What are the tax consequences of such withdrawals?

Once your student is enrolled in a qualified post-secondary education or training program, the contributions, accumulated income, grants, and learning bonds can be paid out to the student. Withdrawals for the student can be categorized as: 1) a return of contributions (also called Post-Secondary Education Withdrawals or PSW), or 2) an Educational Assistance Payment (EAP), which includes accumulated income, grants provided by the Government, and learning bonds. The student must claim all EAPs as income on their tax return in the year in which they receive them – as such, a T4A will be issued in their name. Quite often, students have income below the basic personal amount, or they may be able to claim tuition tax credits, so this results in little or no tax liability. The return of contributions can go to you or be redirected to the plan beneficiary. These withdrawals are not taxable.

EAPs can be used to cover school expenses (ie. tuition, books, housing, and school travel) incurred while the student is enrolled. As of this year, full-time students can now access up to $8,000 in EAPs during the first 13 weeks of enrolment. Thereafter, there is no limit on the EAP amount. If your student is in their second year of school and you did not access any RESP funds for that first year, you would just need to prove enrollment for the previous year and the $8,000 limit will not apply. (Note that there are separate rules for part-time students, so please check the Government of Canada’s RESP guide.)

So, how do you go about accessing the funds from your RESP? To elect to withdraw an EAP, you must sign a withdrawal form from your RESP provider and the beneficiary must provide proof of enrolment in a qualified program. This can be a copy of a tuition fee invoice from the school, with evidence of credits indicating full-time enrollment. If you have a family plan, you can allocate the RESP funds amongst the beneficiaries as you see fit, although government grants are beneficiary specific.

The RESP is just one element of your financial plan. For more information, or if you are interested in an overall financial plan, please contact us at Cumberland Private Wealth. “Achieving your financial goals, is security. Understanding how, is power.” We are always happy to assist you.

TFSA Strategies

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: using a TFSA

For more than a decade, advisors and financial planners across the country have been pushing clients to open and invest in one of the greatest tax strategies Canadians have at their disposal, the Tax-Free Savings Account (TFSA).

Many have followed this advice, but a recent study conducted by Pollara showed that 31% of Canadians plan to use their TFSA as an emergency fund. While the TFSA is well-suited for this purpose, we want to outline why you should consider making the TFSA a part of your larger wealth management strategy.


This question comes up often, but for most of our clients, the answer is to take advantage of the benefits of both types of investment accounts.

When you make an RRSP contribution, it’s usually tax-deductible in the current year. However, both your original contribution and any gains you’ve earned will be fully taxable when you withdraw them in the future. The idea is that you’ll be in a lower tax bracket once you retire, and therefore will benefit from having deferred the taxes until then.

When you make a TFSA contribution, it’s not tax-deductible, but your future withdrawals are not taxed – including any dividends, interest or capital gains that you may have earned. That means you can grow your investments for as long as you want and withdraw funds whenever you need them with zero tax consequences.

Generally speaking, the RRSP is great for long-term, tax-deferred retirement savings, and the TFSA is a flexible way to invest for short- and long-term goals while avoiding taxes. They work very well together.

Maximize TFSA contributions

The first thing you want to do with a TFSA is make the most of your available contribution room. To illustrate the reason why, let’s look at a case study.

John is a 50-year-old entrepreneur who has built up a sizable RRSP. However, he has never opened a TFSA. That means he has been accumulating unused TFSA contribution room since 2009, and now has a total available limit of $75,500.

If John made the full $75,500 contribution this year, contributed $6,000 (the current maximum) in every subsequent year until age 80, and achieved a 6% annual return, he’d be on track for some pretty impressive results:

John’s Age Projected TFSA Value

By age 90, John would have accumulated well over $1.6 million, tax-free. If his spouse followed the same strategy, his family could have about $3.3 million tax-free set aside.

Don’t forget the kids

Now imagine John wants to provide some financial assistance to his 18-year old daughter – say to buy her first home several years down the road. Why not take advantage of her tax-free investing potential too? He could gift her $6,000 per year which she could invest in her own TFSA. If she achieved the same 6% annual return as John, she would have over $100,000 tax-free put away before she turned 30.

Take advantage of estate planning

Now what happens to John’s TFSA after he passes away?

If he elected his spouse as his Successor Holder, they could inherit his TFSA without tax, and it could continue to remain invested and earn income on a tax-free basis. This is an extremely valuable feature of TFSAs that is not available with regular investment accounts.

Alternatively, if he intended to have his daughter inherit his assets, he could name her as his Beneficiary, and she would receive the proceeds of his TFSA tax-free. Because the TFSA would not pass through his estate, the delays and costs associated with a legal process known as probate would be avoided. These fees vary by province, but in John’s case, would likely amount to tens of thousands of dollars.

While it is true that your TFSA can make a great emergency fund, it can also be a powerful way to accumulate tax-free wealth for your retirement, your growing family and your future estate.

If you have unused TFSA contribution room or questions about whether you are maximizing the opportunities available to you, please speak with your Portfolio Manager.