How to get free money for your child’s post-secondary education
Access up to $9,200 in government grant money by opening an RESP
August 20, 2020
Post-secondary education is
expensive, so saving up for it in an RESP is an excellent idea. Not only does an
RESP offer tax-sheltered growth, but also the Government of Canada provides up
to $9,200 in grant money to eligible beneficiaries. Some provinces also offer a
provincial grant to their residents.
There are two federal grants: the Canada Education Savings Grant (CESG) and
the Canada Learning Bond (CLB). The CESG is paid as a percentage of
contributions to an RESP but the CLB is not dependent on contributions. Provided
you meet the eligibility requirements, once you open an RESP and apply for these
grants, the money will be paid into the RESP automatically each year. Concentra
Trust can help you plan for your child's education by connecting you with an
RESP provider near you.
Canada Education Savings Grant (CESG)
Each child who is a Canadian resident is eligible to receive the CESG on
contributions made to an RESP, up to the end of the year he or she turns 17. Up
to $2,500 per year contributed to an RESP for an eligible beneficiary is
eligible to receive 20% basic CESG—that’s an immediate 20% return on your
contributions, up to $500 in free money per year, regardless of your family’s
income. Lower- to middle-income families may also receive up to $100 in
additional CESG, calculated as 10% or 20% on the first $500 contributed
annually, depending on their income level. For contributions made in 2020,
beneficiaries whose family net income is less than $97,069 may be eligible for
the additional CESG. The lifetime limit of CESG to a beneficiary is $7,200.
If in any year, you do not make sufficient contributions to attract the
maximum CESG, the difference can be carried forward and added to grant room in
subsequent years, which allows you to catch up on unused basic CESG amounts.
Qualifying for the Canada Learning Bond (CLB)
The CLB is available to lower-income families with children born after
January 1, 2004. Eligibility is based on family net income and not on
contributions. For example, for the 2020/2021 benefit year, families with up to
three children may be eligible for the CLB if family net income is ≤ $48,535.
Families with more than three children may qualify at a higher income bracket.
Qualifying beneficiaries will receive an initial payment of $500 and receive
an annual instalment of $100 for each year of eligibility until age 15, up to a
lifetime maximum of $2,000. The CLB is retroactive, so once you apply, the
beneficiary will receive CLB for each past year they were eligible; however, the
earlier you apply, the more time the CLB has to grow in the RESP.
The following example is a basic illustration of an RESP opened for a
beneficiary at birth who is eligible for the basic amount and 20% additional
CESG and CLB each year. In addition to the $9,500 in total contributions, the
beneficiary receives another $5,600 in federal government grants, thereby
increasing the amount deposited to the plan by almost 60%, making a substantial
difference to the overall value of the plan.
A beneficiary has up to 35 years after the plan is opened to access the funds
in the RESP. When the beneficiary enrols in post-secondary education, such as an
apprenticeship program or a program at a university or college, the grants,
along with the income earned in the plan, are paid out as an educational
assistance payment (EAP). The EAP is taxable income to the beneficiary. Since
students tend to have little or no income, they will likely not owe much tax on
those payments, if any. The contributions may be withdrawn tax-free.
If the beneficiary does not pursue post-secondary education, generally any
CESG and CLB in the plan is returned to the government. However, there are
options for the CESG to be shared with other beneficiaries in a Family Plan or
with an eligible replacement beneficiary in an Individual Plan, if certain
requirements are met.
How Concentra can help
If you offer RESPs, our registered plans specialists can answer your
questions and ensure you are optimizing your clients’ access to RESPs, federal
and provincial grants.
For more information, contact:
1.800.788.6311 | email@example.com
Concentra Trust trustees registered plan contracts, representing more
than $35.5 billion in AUA. We are a trusted partner of Canadian credit unions
and businesses. We have the experience and fiduciary expertise of a national
trust company, and extensive experience handling estate payouts for registered
and non-registered products. We can help you navigate the complexities of
legislative and regulatory expertise and oversight, and assist you with
resources and training for your staff.