If my understanding above is correct, how does it work if I want to name a successor subscriber in my will? Can I name my wife, as she would then be the sole subscriber in the event of my passing? If not, who could I appoint?
–Bill
A. Bill, you’re good. Your wife can be a joint subscriber without literally being a “blood relative.” Here’s confirmation from the Government of Canada website, in sections 4(f) and (g).
Joint subscribers can be the parents, guardians; spouses or common-law spouses.
With that cleared up, I need to ask: Have you given any thought as to RESP contribution strategies?
Most people aim to contribute $2,500 a year, in order to maximize the annual grant of $500, which is 20% of $2,500.
Over the life of the RESP, the maximum grant per child is $7,200, requiring total contributions of $36,000. You can contribute up to $50,000 per child, if you like, but the additional $14,000 is not eligible for government grants.
The table below shows a few different contributing strategies and outcomes for a family with an income of $100,000 a year. In all cases, contributions stopped at a total of $36,000.
2020 start |
SCENARIO A
$2,500 x 14 years + $1,000 |
SCENARIO B
Wait 3 years to start |
SCENARIO C
$36,000 lump sum in year 1 |
SCENARIO D
$2,500 x 8 years + $16,000 |
Deposits |
$36,000 |
$36,000 |
$36,000 |
$36,000 |
Growth (5% return) |
$36,853 |
$26,187 |
$53,158 |
$37325 |
Government grant |
$7,200 |
$7,200 |
$1,000 |
$7,200 |
2038 total |
$80,053 |
$69,387 |
$90,158 |
$80,525 |
Now, let’s walk through these results.
- Waiting three years before contributing to an RESP (as in Scenario B) results in $10,666 less money.
- An initial lump-sum deposit of $36,000, while earning a grant of only $1,000, provides the most money (Scenario C).
- Lump-sum investing may not be worthwhile once your child is older than 8 or 9 (Scenario D).
You probably have questions. In Scenario C, for instance, why does a contribution of $36,000 result in only $1,000 worth of grant money?
The maximum grant paid in any year is $1,000 based on 20% of a $5,000 contribution. Of the $5,000 contribution, $2,500 is considered this year’s contribution and the other $2,500 is considered a past year’s contribution, if you have a past grant to catch up on.
You cannot collect all future grants with one lump sum payment.
However, in the example above making a $36,000 lump-sum contribution provided the most money because it was growing at a rate high enough to overcome the absence of guaranteed grants.
Good article.
The only problem I see in your theory is that you assume a 5% Return every year with the lump sum.
The governement Grant is guaranteed money even if the markets are down.
Much Safer to go with Strategy A.
Why look at just what happens in the RESP account though? How about the scenario where I have the money (36000k) for a lump sum deposit today, but choose to deposit 2500k+grant every year in my kid’s RESP while investing the rest in an unregistered (or ideally in a TFSA) account? Isn’t it misleading to ignore growth outside of the RESP?
Due to the large volume of comments we receive, we regret that we are unable to respond directly to each one. We invite you to email your question to [email protected], where it will be considered for a future response by one of our expert columnists. For personal advice, we suggest consulting with your financial institution or a qualified advisor.
Hi,is thea penality for over contributing to RESP?
Due to the large volume of comments we receive, we regret that we are unable to respond directly to each one. We invite you to email your question to [email protected], where it will be considered for a future response by one of our expert columnists. For personal advice, we suggest consulting with your financial institution or a qualified advisor.