How to Maximize Your RESP With Government Grants

Posted on Jan 20, 2012

I wanted to follow up my first few posts with something that is worth a lot more money than a couple packages of free diapers.   The Free Baby hopes to offer a wide range of information,  providing ideas for savings and making money both big and small.  Raising a free baby doesn’t have to mean using baby clothes made out of recycled potato sacks and eating only rice for every meal.  In fact I just had a post on how you can get the top of the line Bugaboo Cameleon stroller for free.  So I would like to think that I am providing information on how you can raise your baby for free, in style! What could possibly be better than a stylish baby you might ask?

A well educated one!

I just saw a great movie last week called The Descendants, if you haven’t seen it yet I really recommend it.  The main character has access to a trust fund worth hundreds of millions but he chooses to live off his own personal income instead.  My favorite line in the movie was when he says:

“Give your kids enough money so that they can do something but not enough that they can do nothing”

This really resonated with me because this is how I want to provide for my children. I am pretty sure this would also be one of own fathers’ mottos.   I was fortunate enough that my parents planned ahead and put aside some money to help my sisters and I with our University costs. Their plan was to pay for half of our education and I felt this worked really well for us because then we were able to take some ownership and feel empowered by our education.  Even though my son is barely over 1, I am pretty sure this is the same path I am going to take with him.  This means that I might as well start saving now and take advantage of the government grants available so that I will be able to come up with half his tuition when Harvard comes knocking!

For those of you who aren’t familiar with RESPs, this acronym stands for a Registered Education Savings Plan.   These are available for all babies born in Canada and one of the many benefits is that they give you an opportunity to grow your investment sheltered from any taxation until it is withdrawn.  They are also very attractive because the Canadian government will give you FREE money!

An RESP account can be opened with your current investment advisor or you could easily open a self directed account online and manage it on your own. Within this style of account you or your advisor could buy stocks, bonds, mutual funds or ETFs.  What you invest in depends on your risk tolerance, knowledge of investments and long term goals.

How to Take Advantage of the Available Government Grants:

The first grant I want to talk about is the Canada Education Savings Grant.  This grant is available for every child in Canada with an RESP account.

No matter what your family income is, HRSDC pays a basic CESG of 20% of annual contributions you make to all eligible RESPs for a qualifying beneficiary to a maximum CESG of $500 in respect of each beneficiary, and a lifetime limit of $7,200.

I think that this percentage of return on investment is fabulous!  Especially on a risk free one. It gets better because you might also be elligible for more depending on your family income:

  •  40% (extra 20% on the first $500), if the child’s family has qualifying net income for the year of $41,544 or less; and
  • 30% (extra 10% on the first $500), if the child’s family has qualifying net income for the year that is more than $41,544 but is less than $83,088.

There is even more money available for families who are entitled to the National Child Benefit.  They also qualify for the Canada Learning Bond:

The CLB will provide an initial $500 to children born on or after January 1, 2004. To help cover the cost of opening an RESP for the child, HRSDC will pay an extra $25 with the first $500 bond. Thereafter, the CLB will also pay an additional $100 annually for up to 15 years for each year the family is entitled to the NCB supplement for the child.

That covers off the major national progams but there are also provincial programs.  My family and I are lucky enough to live in Alberta where we have the Alberta Centennial Education Savings Plan Grant.  This grant is worth $500 dollars for every registered child born in Alberta after 2005.  You don’t even have to contribute anything to get it, you just need to open an RESP account!  Then there are additional $100 contributions that happen when your child turns 8, 11 or 14 if they are attending school in Alberta (Please note: these grants require a minimum of $100 invested in the RESP within one year prior to applying). Before you open your account make sure that you check the list of eligible RESP providers listed here because the ACESP is only available to you if you open the account with one of them.

If you live outside of Alberta I would recommend googling your ‘province or state’ and ‘government education grant’ or something like that to see if any programs are available to you.  Keep on eye on this as governments are always introducing new education programs to help families send this children to college.

My recommendation is to start putting money into these accounts as early as you can, so that even if you aren’t yet sure of how you will invest the money you can take advantage of compounding interest.

1 Comment

  1. Catherine Bi
    February 15, 2012

    I did RESP for my girl as well. ^_^


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