While chatting with a friend, I found out that it is not common knowledge that if you didn’t contribute to a Registered Education Savings Plan (RESP) in previous years, you can catch up on contributions and possibly still get the lifetime maximum Canada Education Savings Grant (CESG) of $7,200 that your child can receive. It’s hardly surprising — for many families paying down debt or saving for retirement takes priority over saving for a child’s education. If you missed contributing to a RESP, it may not be too late to catch up on past contributions and get every dollar of the CES grant.
First, a quick primer on CESG rules: (1) Starting in 1998, the CES grant accumulates every year for a child until she turns 17. The basic grant room is $400 per year from 1998 to 2006 and $500 from 2007. (2) The maximum CES grant that a child can receive in a calendar year is $1,000 provided grant room is available. (3) The lifetime CESG is $7,200.
As you can deduce from the rules, in every calendar year, you can catch up for roughly one more year of missed contributions. For example, let’s say no RESP contributions have been made so far for a child born in 2000. The total CESG room for the child is $3,800 ($400 for the years 2000 to 2006 and $500 for 2007 and 2008). If a RESP account is set up for the child and $5,000 is contributed to it, the child will receive a grant of $1,000 and have the remaining $2,800 carried over to future years. In this example, it will take another 6 years to bring the grant room down to zero.
Globe and Mail columnist Rob Carrick has written a couple of articles on RESP catch-up contributions available here and here. Note that the CESG rules are slightly different now.
[Update: You can find the unused grant room for your child by calling Service Canada at 1-888-276-3624. You’ll need the child’s Social Insurance Number.]