RESP Contribution Deadlines: What You Need to Know

As the cost of education continues to rise, taking advantage of the benefits provided by RESPs becomes increasingly important. Planning for a child’s future education requires careful financial considerations, and the Registered Education Savings Plan (RESP) offers a means of building savings for higher education. However, one thing to be considered with an RESP is its contribution deadline. Understanding the timeline and implications of the contribution deadline is vital for parents, grandparents, and guardians who aim to maximize their RESP savings.

This article will explore the significance of the RESP contribution deadline, its impact on government grants, strategies to optimize contributions, and the potential consequences of missing this critical deadline. By gaining insight into the contribution deadline, you can make informed decisions and ensure that your child’s education savings plan remains on track.

What is the RESP Contribution Deadline?

RESPs are great for families with kids, dependent children, or even for empty-nesters who want to still support their grandkids somehow. While RESPs are not tax-deductible, savings that grow in them are tax-deferred until the point of withdrawal. There are also rules surrounding contributions and for funding a child’s future education in this format.

Remember: the maximum RESP lifetime amount is $50,000. There is no maximum amount to how much you may contribute annually, but the government’s program – CESG – will only match a percentage of your initial $2,500 contributions every year, up to a lifetime maximum grant value of $7,200.

The annual contribution deadline for this always revolves around the calendar year, with New Year’s Eve (December 31st) marking the last day you can trigger more education savings grant CESG funds for that year. So, if you want to maximize returns, ensure that you make your annual RESP contributions before the New Year’s Eve RESP deadline.

How Contribution Deadlines Affect Canada Education Savings Grants

As we said, RESP deadlines will have a direct effect on Education Savings Grants (CESG). Missing your deadline is like wasting a golden opportunity of growth potential. One of the main RESP benefits is that government grants will match 20% of your annual contributions, up to a maximum $500 per calendar year. So, if you don’t meet your deadline for the year, you’re losing out on essentially free money towards your child’s post-secondary dreams.

Carry-forward rules

It’s important to note that there are carry-forward rules that apply to RESP accounts. Say you missed the deadline for this year. To get your CESG for the year, you can carry the unused grant room to the next year, so you can catch up on missed contributions up to $1,000 per year (total $2,500 in CESG per child).

RESP Contribution Limits & How to Optimize Savings

RESP contributions can be made at any time, up to a lifetime maximum of $50,000 per beneficiary. This means that you can technically contribute as much or as little as you’d please at any time. To make the most out of your contributions and receive the most grants you can from the government, it is typically advisable that you contribute $2,500 each year to your plan until you reach the lifetime Canada Education Savings Grant value of $7,200.

Note that if your contributions ever exceed the lifetime max of $50,000, then a 1% penalty tax is levied every month on the excess contribution until that excess is eventually withdrawn from the account.

Best Strategies for Maximizing RESP Contributions Before the Deadline

Smart asset allocation into your child’s RESP is key to maximizing your tax deferred growth inside the account. Here’s how you can reach your contributions before each yearly deadline:

Set up automatic contributions

To avoid missing contribution payments, consider setting up automated deposits into your RESP with your financial institution or RESP provider. With automatic payments, you can avoid manually adjusting or transferring money into your account each month.

So, no matter how busy your day-to-day becomes, you can rest assured knowing you’ll be meeting your target asset allocation into your RRSP by the end of the year, while optimizing grants like the Canada Learning Bond, which helps low income families pay for their child’s tuition.

Lump sum payments vs. regular deposits

Although regular deposits into your account continuously maintain your contributions, lump sum deposits are effective if you need to catch up on missed payments and CESGs for any given year. If you have the means, making a large lump sum before the end of the year will ensure you don’t miss out on any grants.

Remember, a balanced growth strategy is key. So, if you can strategically balance both approaches, you’ll be guaranteed growth over the years.

Year-end contribution checklist

Don’t forget to go through an end-of-year checklist when it comes to your investment portfolio by doing the following:

• Check your CESG eligibility: Make sure you’ve contributed enough money into your RESP to qualify for the full $500 CESG for the year.
• Review forward rules: If you miss a contribution, don’t panic. Take advantage of the carry forward rule to maximize your grant room the following year.
• Make your final deposits: Ensure all of your contributions are made before December 31st.
• Track your overall contributions: Keep track of your contributions to maximize growth potential and avoid the lifetime maximum of $50,000.

A Registered Education Savings Plan (RESP) is not just a savings account

Opening RESPs are amazing opportunities to give your child, niece/nephew, grandchild, dependent, or whoever, a great head start financially when it comes to post-secondary education. Since post-secondary is becoming so expensive in Canada, having the means to fund that beneficiary’s future education expenses and living expenses, can go a long way. RESPs are also flexible in that they allow you to keep the account open for 35 years for your child’s education fund.

There are a lot of post-secondary paths that exist, but university education is said to be one of the most expensive routes. Some cities and schools are more expensive than others, hiking the average price even further. RESPs are one of many options as well and are not just a savings account.

You may explore the potential of other savings accounts, like TFSAs, depending on your financial situation and your current future planning. The best savings plan is the one that you can afford, and since daily costs are always going up, it’s important to work with experts to determine what option is best for you. With an RESP and Embark’s advice, you can create a flexible savings plan that works for you.

RESP Contribution Deadline FAQ’s:

Can I contribute to an RESP for previous years?

RESP contributions can be made at any time, up to a lifetime maximum of $50,000 per beneficiary. This means that you can technically contribute as much or as little as you’d please at any time. To make the most out of your contributions and receive the most grants you can from the government, it is typically advisable that you contribute $2,500 each year to your plan until you reach the lifetime Canada Education Savings Grant value of $7,200. However, if you cannot save this much every year, that’s not a problem at all. Unused CESG contribution room can be carried forward to the next year. There are limitations to how much back grant can be collected at a time. To collect grant once a beneficiary reaches age 16 there are additional requirements which must be met. A well established RESP will help meet these requirements.

Note that if your contributions ever exceed the lifetime limit of $50,000, then a 1% penalty tax is levied every month on the excess contribution until that excess is eventually withdrawn from the account.

What happens if you miss a RESP contribution?

With individual or family registered education savings plans, you’re free to contribute when and how much you please to your child’s education savings, to the lifetime maximum. However, frequently forgetting to contribute may mean lower savings accumulation, as regular contributions can help to accumulate savings with time. If you miss a contribution, you could slow down the growth of your savings overall.

This means that failing to regularly contribute may impact the funding your beneficiary has for their education. Consistent contributions to RESPs are necessary to maximize available funds and provide the necessary financial support.

Finally, since most grants have annual maximum allotment values, missing contributions may result in the underutilization of the money available to you and could result in limited overall savings potential.

What’s the contribution limit?

RESPs do not have a yearly or annual contribution limit, however they do have a lifetime contribution limit per beneficiary. Currently, the lifetime contribution limit for RESPs is $50,000 – and that’s per beneficiary, so you could make a contribution to another beneficiary without it affecting the contribution room of another.

Grants for savings plans also have a limit. For the CESG, the total lifetime grant amount that eligible beneficiaries may receive is $7,200, which is the same no matter family income. The maximum contribution the government will percentage match for the CESG is $2,500 per year or up to $5,000 per year if the beneficiary has back grant room. To learn more about grant criteria and allotments, please click here.