RESP Contribution Limit (The Bottom Line)

If you’re wondering what the RESP contribution limit is, you’ve come to the right place. This post will go over what the RESP contribution limit is for this year (or for the maximum RESP contribution limit, for that matter), and some RESP contribution strategies to think about in order to maximize the amount that will be available for your child when they require it for their post-secondary education, even if that’s over 15 years down the road.

RESP Contribution Limit (2023)

What is the RESP Contribution limit for 2023?

To be honest, the RESP contribution limit for 2023 is a bit of a misnomer, because there isn’t a particular MAXIMUM contribution amount for your child’s RESP per year, unlike the RRSP and TFSA which have defined contribution limits.

The RRSP and TFSA have defined contribution limit and also hefty penalties should you pay more than the amount you are allowed to contribute. The RESP, on the other hand, does not have an annual defined contribution limit.

What is the maximum RESP contribution limit?

For each RESP, there is a maximum RESP contribution limit of $50,000.

It doesn’t matter which year you put that maximum amount in but over the years you can only contribute up to a maximum of $50,000 per lifetime.

The RESP lifetime contribution limit is $50,000.

The $50,000 contribution amount does not include the $7200 CESG grant amount that is paid by the government. As long as you keep to this $50,000 maximum amount, you can keep contributing to the RESP up to the age of 17 for your child.

The RESP money is withdrawn tax-free for a qualifying education program, and called “Educational Assistance Payments” or EAP.

It doesn’t matter how many RESP accounts you have for your child (just like it doesn’t matter how many TFSA accounts you have), but it is important to keep track of your contributions to the RESP accounts so that you don’t go over the RESP maximum contribution of $50,000.

What Is an RESP?

First off, it would help to review what an RESP is for and what it stands for.

RESP stands for Registered Education Savings Plan.

The RESP is a government initiative to encourage families to save money for their children for post-secondary education, is essentially the meaning of RESP.

The money that you put into your RESP plan grows tax free. 

On top of that, the government matches your RESP contribution with a 20% match from the Canada Education Savings Grant (CESG). 

So if you contributed $2500 into your child’s RESP, you would get $500 from the government.

Just like with other registered products from the government of Canada (like the TFSA or the RRSP), the RESP is like a ‘basket’ where you can hold and invest in what you please.  For example, you can hold stocks, dividend paying stocks, ETFs, high interest savings accountsGIC’s, or mutual funds.

In simple terms, an RESP is similar to an RRSP where it is a BASKET of investments (you can hold the RESP in various things like GIC’s, mutual funds, equities etc.).

The difference is that the money that grows inside this basket is meant for your child’s post secondary education and it is tax sheltered. The investments and money within the RESP are not subject to tax.

Money invested within an RESP grows tax free (that means no capital gains tax, no interest income tax, no tax period while it is in the RESP!).

Who can contribute to an RESP?

Anyone can contribute and open up an Individual RESP for a child if they have access to the child’s social insurance number. However, only a parent or grandparent can open up a Family RESP for a child. An RESP has a subscriber and a beneficiary.

With the RESP, the parent (they name the funding person the “subscriber”) can contribute money for the child (they name the child the “beneficiary”).

Is an RESP tax deductible?

The contributions toward the RESP are made with after tax income.  

The contributions cannot be deducted from your income tax.

The RESP is different from the Canada Child Benefit and the wonderful monthly Child Tax Benefit payments.

RESP Over-contribution Penalty

What happens if you accidentally contribute more than the maximum lifetime amount of $50,000?

What happens if you over contribute to the RESP?

Similar to an over contribution of the TFSA and RRSP, if you over contribute to the RESP over the $50,000 lifetime amount, you will be required to pay tax in the amount of 1% per month on the over-contribution amount until it is taken out of the RESP.

So for example, if you contributed $55,000 in total, the $5000 is taxed at $50 a month until it is taken out of the RESP. If you left it in their for 6 months without knowing and then take it out on the sixth month, you would be paying about $300 in taxes.

Maximizing RESP Government Contributions

What’s the RESP max contribution?

Now that we know what happens if you do the dreaded “O” word (over contribute), let’s see what ways you can optimize the RESP in order to get most of the Canada Education Savings Grant.

There are a few ways where you can optimize the RESP contributions in order to maximize the CESG grants and maximize the tax sheltering capabilities of the RESP.

Technically you only need to contribute $36,000 in order to maximize the CESG payments of $7200.

CONTRIBUTE $2500/YEAR FROM YEAR ONE

One common way to invest in an RESP is to just contribute a straight up $2500 from the beginning and keep going until you reach $36,000 to get the maximum CESG or $50,000 to reach the maximum RESP contribution.

Of course, there are a lot of costs already in your baby’s first year, and coming up with $2500 can be difficult.

$2500 annually works out to be about $208 per month over 14.4 years.

YearContributionCESG
1$2500$500
2$2500$500
3$2500$500
4$2500$500
5$2500$500
6$2500$500
7$2500$500
8$2500$500
9$2500$500
10$2500$500
11$2500$500
12$2500$500
13$2500$500
14$2500$500
15$1000$200
Total$36,000$7200

However, because the RESP is similar to a TFSA and an RRSP in that it is tax sheltered, meaning anything that accumulates inside the RESP is exempt from taxes, we want to take advantage of that.

Although when the beneficiary withdraws from the RESP, the EAP will be taxable, but as a post-secondary student, the beneficiary’s income will be expected to be very low, therefore the tax hit won’t be bad.  

It is similar to an RRSP, the RRSP is tax sheltered and when you withdraw it your income should be low (retirement) so that the tax hit hypothetically won’t be bad.

CONTRIBUTE $50,000 ALL AT ONCE

Another way is to contribute $50,000 straight up in the RESP.  

You would take advantage of a strong tax shelter for many years, but one major downside is that you won’t have the annual CESG payments.

This would allow you to have the $500 for the first year but because the CESG is paid on an annual basis, you wouldn’t be able to get the CESG in subsequent years.  

Unfortunately, this means no free money from the government, so this RESP contribution strategy is not ideal and not an optimized option unless you don’t care about getting free money from the government.

Also, who has $50,000 laying around right off the bat for their newborn for tuition (unless you are one of those people who plan for the financial checklist for new parents much ahead of time and are already a rich Canadian), am I right?

FRONT LOAD THE RESP IN YEAR ONE

Finally the last option is to front load the RESP contributions like Strategy B (because we want to take advantage of the tax shelter and compound interest, and all other great things that happen when you have a long investment horizon, like 18 years) but with the CESG in mind.  

The maximum CESG grant is $7200.

To get the maximum CESG grant of $7200 you would need a time horizon of 14.4 years.  

This would mean contributing:

  • $16,500 in the first year which is a nice $500 in CESG given by the government in year one
  • $2500 annually from year 2 to 14 (for 13 years) which equals a total of $6500 in CESG
  • $1000 in the last year (14th year) which represents the maximum contribution limit of $50,000, so you would only get the final $200 in CESG grant for that year
YearContributionCESG
1$16,500$500
2$2500$500
3$2500$500
4$2500$500
5$2500$500
6$2500$500
7$2500$500
8$2500$500
9$2500$500
10$2500$500
11$2500$500
12$2500$500
13$2500$500
14$2500$500
15$1000$200
Total$50,000$7200
This is the RESP contribution plan that we plan to follow.

A couple weeks after our first child was born we opened up an RESP for him.

Apparently according to our RESP provider, many parents bring their baby in at around 2 months to open up an RESP.  This means many parents are getting a head start with investing for their children’s education, which is great to hear!

For our own Family RESP, we will use a 100% equities option initially as the time horizon is long (we have 18 years after all) and as we approach year 18 when we will need to draw down the RESP, we will convert our RESP asset allocation to something that will preserve capital and decrease risk.  

This approach is similar to investing in an RRSP when one approaches retirement and needs capital preservation.  

The interesting thing about analyzing these RESP strategies is that a lot of people assume that contributing $2500 a year maximizes the plan. It doesn’t.

Using the Ontario Securities Commission RESP calculator, by age 10, the portfolio value of our RESP for our older child should be just under $70,000 provided that there is an assumption of 6% annualized returns.  

Of course it might not look like this depending on when the recession will hit and whether we decide to invest the full $16,500 in year zero or one.

Hopefully this post helped you understand the RESP contribution limit a little better, and know that there isn’t a yearly contribution limit like there is for the TFSA or the RRSP, but that there is a lifetime contribution limit of $50,000.

RESP Tax Deduction

Can you get a tax deduction with an RESP?

Unfortunately, unlike the RRSP, contributions towards an RESP do not result in an RESP tax deduction.

Contributions to an RESP are made with after tax dollars, therefore you do not get a refund or an RESP tax deduction.

However, you do get a 20% match of your contribution in the form of a CESG grant from the Canadian government.

RESP Contribution Catch Up

What about catching up with your RESP contributions? How does that work?

If you did not contribute to your child’s RESP in the first few years, it is understandable because of the sheer volume of ‘overwhelm’ when you become a new parent (changing diapers, sleep deprivation, constant crying).

You can indeed play RESP contribution catch up.

As long as you follow the table of RESP contributions outlined above (maximum of $36,000 contribution if you want to maximize the CESG and $50,000 lifetime if you want to front load it), you should be able do your RESP contribution catch up without any issues.

The RESP is a powerful tool in the Canadians’ parents financial tool belt to manage their money in Canada.

Although there is not an annual RESP contribution limit there is a lifetime RESP contribution limit and that is $50,000.

Hopefully this post about the RESP contribution rules in Canada was helpful for you.

You may also be interested in:

How do you contribute to your RESP?

What strategies work for your child’s RESP?

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