Why you should care about the RESP contribution deadline

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Let’s face it. With the holidays approaching, November can be hard on the ol’ wallet. You’ve got gifts to buy and holiday gatherings to plan for—the last thing most of us are thinking about is setting money aside in a Registered Education Saving Plan (RESP). But here’s the thing, the RESP annual deadline is December 31—and if you have kids, there may be a few good reasons to set aside a bit of extra cash in your plan before year end. Stay with us.

What is an RESP?

To understand why the December 31 cutoff date matters, it helps to know a little bit about what exactly RESPs are and how they work. It’s no secret that post-secondary tuition can be really expensive. An RESP is a savings plan registered with Canada Revenue Agency that is designed to help you save for your child or grandchild’s education—up to a lifetime max of $50,000.

Although the money you put into an RESP isn’t tax deductible, any contributions inside the plan can grow tax free. That means that when your child is on their way to college or university and needs to access the money, the withdrawal is taxable in your child’s hands—and not yours. Since most post- secondary students have low (or no) income, they’ll be taxed at a much lower rate.

Match your contributions

One of the biggest advantages to having an RESP is that up until your child turns 15, the first $2,500 you put into the plan each year is eligible to be matched up to 20 per cent through the Canada Education Savings Grant. This means that for the first $2,500 you contribute each calendar year, the Canada Education Savings Grant adds another $500 into your plan. Not bad, right?

And while unused grant money can be carried forward for future years, the most that can be paid out in any given year in grants is $1,000. In order to get this amount, you would need to contribute $5,000.

Earn interest and generate returns

The longer your money stays in an RESP, the longer it has to earn interest or generate other returns.

But if you just can’t make a $2,500 lump sum contribution (and you’re not alone!), it might be a good opportunity to talk with your financial expert to set up smaller, regular contributions that work for you.

Learn more by getting in touch with your local credit union.