What would you say if someone offered a 20% return on every dollar you squirrelled away for your kid’s university tuition? Well, setting up a Registered Education Savings Plan lets you do exactly that: with an RESP, the first $36,000 you contribute is eligible for the 20% Canada Education Savings Grant (CESG). Keep in mind the maximum contribution eligible for the grant is $2,500 per year (up until your kid turns 17), and there’s a lifetime maximum of $50,000 per child that can be contributed. Even though your contributions aren’t tax-deductible like RRSP contributions, the investment earnings do accumulate on a tax-deferred basis. Then, when your child starts post-secondary schooling, funds can be withdrawn practically tax-free because RESP investment earnings and government grants will be taxed at your child’s low marginal tax rate. Sometimes, the tax man’s OK!
Tax savings: A grant of $7,200 per child, plus lower taxes on any investment growth.