Ultimate Guide to RESP Maximum Contributions

Ultimate Guide to RESP Maximum Contributions

With recurrent educational expenses, responsible parents habitually channel their funds to the RESP accounts. Amidst inflation and rising uncertainty looming large, it’s always prudent to save for your child’s post-secondary education.

While RESP has come a long way as an instrument to accumulate your child’s educational costs, it pays to note its limitations and drawbacks. This way, parents can reasonably switch to viable alternatives to ensure higher savings and more flexibility.

Some alternative investment tools like a whole life insurance policy have already gained attention among Canadian parents. Established insurers like Insurance For Children have designed customized policies that offer plenty of benefits and flexibility. Click here to know more about these policies https://www.insuranceforchildren.ca/resp-maximum-contribution/.

Before exploring these schemes, let’s find out the limitations of RESP, along with the maximum contribution you can make.

What is an RESP?

The Registered Education Savings Plan (RESP) is a scheme designed by the Canadian government to help guardians save for the post-secondary education expenses for their respective wards.

This enables Canadians to save adequate funds for their children or grandchildren. They keep accumulating and growing in the RESP account until you withdraw the funds. With such a contribution, you need not shell out taxes on the interest, capital gains, and dividend payments. Besides, the RESP might be qualified for provincial and federal grants. The government has also come up with additional offerings for low or moderate-income families.

Since the Canadian government has designed this program, parents must strictly adhere to the norms. This implies that they can use the funds only for the educational purposes of their children. The authorities would make the final call over how you can use the money and what your children can study.

What is the highest contribution of an RESP?

The government has declared an upper cap on the lifetime contribution for a single beneficiary. Although there is no annual limit for parents contributing to an RESP, the lifetime contribution cannot exceed $50,000.

Experts recommend contributing a maximum of $2,500 per year for each beneficiary. This would maximize your chances to obtain the CESG (Canada Education Savings Grant) of $500. The Canadian government matches 20% of parents’ or grandparents’ deposits to an RESP with this grant. Therefore, if a parent makes a deposit of $36,000 in the RESP account, your child will receive a maximum grant of $7,200 when they reach the age of 17.

On the other hand, one child cannot hold multiple RESP accounts. This implies that parents and grandparents can’t open different RESP accounts for one child. The highest contribution for the child’s lifetime in the RESP account should be $50,000.

What are the types of RESP accounts?

Before opening an RESP account for your child, it pays to understand the different types of RESP accounts. This way, you can make an intelligible decision to maximize the benefits. RESP accounts can be of three types. These are group RESPs, individual RESPs, and family RESPs. Let’s understand each of these schemes one by one.

1. Individual RESP

With an individual RESP account, parents can save for the educational expenses of a single beneficiary. Anyone, including non-primary caregivers, can find the right savings option to accumulate funds for the child’s education through these schemes.

2. Family RESP

If you are interested in saving for the educational expenses of multiple beneficiaries, a family RESP account would be ideal. However, it would be best if you had either blood relation with the beneficiary or must have adopted the child.

Parents looking for more flexibility to save for the education of more than one child during the same tenure can settle with family RESP accounts. However, a beneficiary has to be less than 21 years of age when designated for these schemes.

3. Group RESP

Depending on the financer, the norms governing group RESPs significantly vary regarding withdrawals and contributions. These norms are different from family and individual plans. Before you sign up for any group RESP, know the norms with transparency.

What happens when you over-contribute to an RESP?

Exceeding the lifetime limit of $50,000 leads to overcontribution to an RESP. Overcontribution wouldn’t be a smart move from parents, as these actions come with tax implications. For a concerned beneficiary, each subscriber needs to pay a tax of 1% per month on the excessive contribution that they fail to withdraw by the month’s end.

If you overcontribute, you need to fork out this tax within 90 days after the specific year ends. However, the fund inflow through Provincial Education Savings Programs or CESG to an RESP is excluded while determining the subscribers’ contributions.

Why look out for RESP alternatives?

Although RESPs continue to be reliable instruments to save for your child’s education, these schemes have limitations. Moreover, recent years have witnessed education expenses in Canada soar significantly. However, the government hasn’t increased the CESG limits since 2008. The maximum amount parents receive on this account is $500.

Considering inflation and other issues leading to financial constraints, parents often look for viable RESP alternatives. This is because children habitually need financial support for anything other than education.

For instance, they might have medical emergencies or financial support during their marriages. Considering the government’s restrictions on the usage of RESP funds, it makes sense to go for whole life insurance policies like the Child Plan.

Endnote

With a whole life insurance policy, you wouldn’t be facing any tax implications since there’s no provision for overcontribution. Moreover, parents have the liberty to use the amount without the government’s consent for any purpose. For instance, your child might decide to launch a startup or purchase his/her first home using the funds.

Most importantly, your child would enjoy tax-free value compounding throughout their life. Even after the child matures, parents retain control over the funds. All these factors make a whole life insurance policy more viable for children. Evidently, a whole life insurance policy designed by Insurance for Children can be the perfect alternative to an RESP account.