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Making the most of RESP grants

As a parent, it can be challenging to take full advantage of grants available for Registered Education Savings Plans (RESPs) without some basic understanding of how the Canada Education Savings Grant (CESG) program works.  

The CESG program allows a per-child lifetime maximum of $7,200 by matching 20% of your RESP contributions. Annually, that’s maxed-out once you’ve contributed $2,500 to your child’s RESP account. With that, you receive a $500 grant.

While unused room can carry forward, there are restrictions. The annual maximum grant available is limited to a $1,000 per year so your ability to play catch-up is somewhat limited. The other thing to keep in mind is that a child is only eligible to receive a CESG up to age 17.

Here are three planning scenarios to help to illustrate how the grant program works:

The 15-Year Ideal Plan

The earlier you get money into a RESP, the longer that tax-free compounding can work for you. That applies to the growth of your money, and the receipt and growth on grants.

If you begin with $2,500 in contributions each year starting before your child turns 4, you can spread out your contributions over 15 years, take advantage of all the available education grants, and maximize your tax-free investment earnings.

Over the course of 15 years, you will contribute $36,000 to your child’s RESP account and receive $7,200 in grants for a total of $43,200 (see chart below). This does not include the additional opportunity to enjoy tax-free compounding earnings over the 15-year period. 

# of Years Annual Contribution Annual Grant Total Contribution Total Grant
14 $2,500 $500 $35,000 $7,000
1 $1,000 $200 $1,000 $200
      $36,000 $7,200

The 8-Year Catch-Up Plan

If your child is now 10 years old and you haven’t begun an RESP before this milestone, you can still collect the full lifetime grant entitlement if you begin right away. To do this, you will need to contribute $5,000 this year and in each of the next six years, for which a $1,000 grant will be received annually. Your last contribution in Year 8 will be $1,000, providing you the last $200 of grant money.

While the contribution and grant dollars are the same as the 15-Year Ideal Plan, your ability to enjoy additional tax free compounded earnings is limited by the shorter time horizon.

# of Years Annual Contribution Annual Grant Total Contribution Total Grant
7 $5,000 $1,000 $35,000 $7,000
1 $1,000 $200 $1,000 $200
      $36,000 $7,200

The Never-Too-Late Plan

If your child is over the age of 10, you may not be able to maximize lifetime grants, but you can avoid missing out on available grants entirely. As a nudge not to leave it too late, please keep in mind that grants are only available for children ages 16 and 17 if you’ve put in at least $2,000 by the end of the year your child turns 15, or at least $100 in any four years prior to that.

If you haven’t started and your child turns 12 this year, get that $100 in this year and the next three to keep that door open.

These are just a few illustrative scenarios. There are several other nuances to the program, such as lower available grant dollars for children born before 2007 and some additional programs and allowances for lower income families.

Learn more about RESPs.