The RESP carry-forward
The Canada Education Savings Grant (CESG) tops up contributions you make to a Registered Education Savings Plan (RESP) by 20%. If you skip a year, the CESG entitlement can be carried forward. The catch is you can only use one year's carry forward in any given year to qualify for the CESG – the maximum annual grant amount is $1000.
Contribution and grant limits
There is no annual contribution limit, but the maximum lifetime amount is $50,000. The CESG provides a matching contribution of 20% on the first $2,500 contributed annually, and unused entitlement can be carried forward. Using carry-forward room, the maximum CESG in any one year is the lesser of $1000 or 20% of the contribution. Grants are not included in the lifetime RESP limits.
How carry-forward works
Every Canadian child under 18 accrues a CESG entitlement each year, retroactive to 1998. Note that up until 2007, the maximum RESP contribution to receive CESG was $2,000, instead of the current $2,500. Here is an example of how the carry-forward works:
If you start an RESP for your child this year, you can contribute $2,500 (this year’s contribution room) plus another $2,500 (a previous year's contribution room) for a total of $5,000. You'll receive a $1,000 grant. (You could contribute more than $5000, but you wouldn't receive any grant money.)
You can calculate backwards to determine how much unused contribution room you can use every year. (Note, if you child was born 2006 or earlier, the contribution room for those years prior to 2007 is $2000.)
This staged approach (only using a portion of the carry-forward amount each year) is recommended so you can take full advantage of the CESG. If you were to contribute your entire carry-forward amount of $7,000 in 2009, he would still only receive the $1,000 CESG.
Contribution and grant deadlines
The annual contribution deadline is the end of the year – there is no 60-day grace period as there is with Registered Retirement Savings Plans . As for CESGs, these are paid out only to the end of the year in which the child turns 17.
Don't forget about the British Columbia Training and Education Savings Plan (BCTESP)
When considering an RESP for your child, be sure to start one before your child turns seven in order to qualify for the BC Training and Education Savings Plan grant. When a B.C. resident child turns six years old, the Province of British Columbia will put $1,200 into the child's RESP. The BCTESP grant requires no matching or additional contributions.
The best approach is to get started as soon as you can, even if you can only contribute a small amount to your child's plan. By being able to carry-forward contribution amounts, you can still take advantage of the CESG amounts in the future while starting to save for your child's education today.