Student Loans

What would an RESP be worth by the time they start?

Contributions, the Canada Education Savings Grant they actually earn, and growth. The grant is capped in ways a flat percentage does not capture.

$2,500 earns the full basic grant. More than that earns nothing extra unless you have carry-forward room.
Sets the additional grant rate. Never written into the address bar.
Value at eighteen$72,238.51

Of which $7,200.00 is government grant you did not contribute. That is the part a plain savings account does not have.

  • $40,000.00You contribute
  • $7,200.00Grant earned
  • $25,038.51Growth
  • $72,238.51Total

You reach the lifetime grant maximum

The Canada Education Savings Grant is capped at $7,200.00 per child, at every income level. Contributions after that point still grow, and they earn no further grant.

What this does and does not model

The grant is the reason this is not a plain compound interest calculator. Twenty percent of the first $2,500 each year, plus an extra ten or twenty percent of the first $500 depending on family income, and never more than $1,000 of grant in a single year however much room has built up. A flat percentage applied to every dollar would overstate it for any pattern other than exactly $2,500 a year.

Provincial top-ups are not included. British Columbia pays a one-time $1,200 grant and Quebec runs a refundable credit worth up to $3,600 over the life of the plan.

Contributions are assumed to arrive through the year and so earn half a year of return in the year they are made. Assuming they all land in January would flatter the result.

The grant is the reason to use one

Twenty percent of the first $2,500 you put in each year comes back as the Canada Education Savings Grant, up to $7,200 over the life of the plan. On a lower family income there is an extra ten or twenty percent on the first $500. Nothing else available to an ordinary saver returns twenty percent on the day the money lands.

The pattern matters as much as the amount

Grant room accrues at $2,500 a year whether or not you contribute, and unused room carries forward. But no more than $1,000 of grant is paid in any single year, so catching up takes years of doubled contributions rather than one large one. Somebody who puts $50,000 in on a child's first birthday gets $500 of grant and forfeits the other $6,700.

Getting the money out

Educational Assistance Payments, which are the grant plus growth, are capped at $8,000 during the first thirteen weeks of full-time study and are taxable to the student, who usually has little other income. Your own contributions come back tax-free and are not capped.

Sources

  1. RESP contributions, Canada Revenue Agency. Checked on . Backs the $50,000 lifetime contribution limit per beneficiary; the absence of an annual contribution limit; the 1% a month tax on excess contributions.
  2. How much could you get from education savings incentives, Employment and Social Development Canada. Checked on . Backs the 20% basic Canada Education Savings Grant on the first $2,500; the additional grant rates and the income thresholds they are read against; the $7,200 lifetime grant maximum; the Canada Learning Bond amounts and the $2,000 lifetime maximum.
  3. Pay for education using the RESP, Employment and Social Development Canada. Checked on . Backs the $8,000 cap on Educational Assistance Payments in the first 13 weeks of full-time study; the $4,000 cap per 13 weeks of part-time study.

The rules behind this calculator were last checked on .

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