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?
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.
$2,500 x 14 years + $1,000
Wait 3 years to start
$36,000 lump sum in year 1
$2,500 x 8 years + $16,000
|Growth (5% return)
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.