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RESP - pay max now?

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  • Jan 4th, 2020 1:31 pm
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[OP]
Member
Oct 27, 2013
248 posts
68 upvotes
MISSISSAUGA

RESP - pay max now?

I was trying to find this on the govt website but it’s vague.

Can I contribute the lifetime max now ($50k) recognizing it’s not needed for at least another 11-13 years?
4 replies
Deal Addict
User avatar
May 11, 2014
3650 posts
3503 upvotes
Iqaluit, NU
You can, however you will miss out on most of your eligible grants because the Canada Education Savings Grant (CESG) is given upto $500 per year. If you were to immediately contribute $50000, you would only get $500 of the $7200 of possible CESG.

The best way would be to spread the contributions and have the remainder of the money invested non-registered (or in a TFSA if you have the room).

Say for example if the money is needed in 11 years, you have $50000... (your possible max CESG in this case is $5500), you should front-load the RESP with $27500, and place the rest of the funds into a non-registered/TFSA (pending room)
-----------Non-Registered/TFSA------------RESP
Year 1) -----$27500------------------------$22500

Then in following years, transfer $2500 from the non-Registered/TFSA into the RESP

If you have 12 years, the RESP front load is $20000, 13 years is $17500.

To maximize your CESG , you actually need 14 years of contributions. In this case, you need to place $16500 into the RESP, and save $33500 on the side.
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Newbie
Sep 18, 2017
83 posts
83 upvotes
I just contribute $2,500 per kid every January 1st and get $500 grants per kid on February 28. They are on track to have $100k each (current balance is $117k and they are 12 and 10 years old). 100% invested in VGRO.
Deal Fanatic
User avatar
Sep 1, 2013
5421 posts
471 upvotes
It depends on what rate of return you think you can get from now until when the child withdraws the funds for school.

https://www.theglobeandmail.com/globe-i ... le4554816/

The lower the rate of return, the more beneficial it is to make the yearly contributions (and get the $500) vs. front loading your contributions.
Deal Fanatic
Jul 1, 2007
8341 posts
1336 upvotes
If you have the money to max it out now, and presuming the markets act normal over the ensuing years (gradual up trend as opposed to a major bear market in the short term) you're best of maxing it now. Time in the markets offsets anything gained from grants and then you have less to worry about grant clawbacks down the road.

If, however, you want to maximize grants, consider: If you max out $50K over the 18 calendar years that the child is eligible for grants (from the year they're born to the year in which they turn 17), you'll hit the $7200 lifetime grant maximum anyway after contributing $36K, meaning $14K gets no grant. If you want to balance out maximizing time in the market and maximizing grant and the child is newborn: contribute $16,500 now ($14K that isn't going to get grant matching plus $2500 for this year's grant) and then contribute $2500 per year. If your child was born more than 4 days ago (in 2019) then you'll get $1000 of grant right off the hop (an addendum to xgbsSS's post: you can get $500 maximum grant per year PLUS grant for one past carry forward year).
Money Smarts Blog wrote: I agree with the previous posters, especially Thalo. {And} Thalo's advice is spot on.

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