Getting Started: Education Plan
In the Education Plan section, we want to map out future Registered Education Savings Plan or RESP contributions for children under the age of 18. More importantly, we want to take advantage of RESP grants, called Canada Education Savings Grant or CESG.
We want to maximize the CESG, and if possible, take advantage of any catch-up contributions as well.
Canada Education Savings Grant or CESG
The RESP grant is 20% of contributions each year up to a maximum of $500 per year. A contribution of $2,500 will maximize the grant each year. By selecting “Yes” for Maximize CESG (Grant) the platform will plan contributions to help maximize the grant each year going forward. Selecting “No” means you must plan your own RESP contributions in the Education Plan table below the chart.
Each child can receive up to $500 in CESG each year, from age 0 onward, up to a lifetime maximum of $7,200. Making the maximum contribution from birth means a child will hit the lifetime maximum grant of $7,200 by age 14 and a half. To maximize the grant over 14 and half years requires contributions of $36,000 per child.
Catch-Up Contributions and Grants
If contributions weren’t made in the past, or the grant was only partially maximized in the past, then it is possible to make catch-up contributions. The RESP grant can be caught up at a maximum rate of $500 per year which requires an additional $2,500 in catch-up contribution. To take advantage of the current year’s contribution and grant as well as a full catch-up contribution and catch-up grant will require a total contribution of $5,000. By selecting “Yes” for Maximize CESG Catch-up the platform will plan contributions to help maximize the grant and the catch-up each year going forward, but this will require more cashflow and savings.
It’s important to note that the Education Plan section assumes children were born in Canada and are either citizens or residents. Children who have immigrated to Canada will not be eligible for catch-up contributions or grants for the years spent outside of Canada, so it is important in those situations to set “Maximize CESG Catch-Up” to “No” or to fine tune your plan with an advice-only financial planner.
It is also important to note that when a child is 16 or 17 the rules for catch-up contributions are different and a 16-year old or 17-year old may not qualify for grants in certain circumstances which is why the platform may not calculate grants at age 16 or 17.
Creating A GREAT Education Plan with Advanced Options
To create GREAT education plan, especially for multiple children, it may be necessary to add the specific amounts for Past Contributions and Past CESG (Grants) received up to this current year. This can be done in Advanced Options by clicking the Advanced Options button on the top right of the table. This is important if you want to maximize the grants, or the lifetime contribution limit, or both.
To quickly get these details you can call the Canada Education Savings Program, and you will need your child’s social insurance number as well as your own. When you call in, you can ask two questions...
- “In total, how much has been contributed for each beneficiary up to the beginning of this year?”
- “How much has each beneficiary received in grants from the government up to the beginning of this year?”
Phone: 1-888-276-3624
Website: https://srv144.services.gc.ca/cgi-bin/ContactForm-FormulaireContact/index.aspx?GoCTemplateCulture=en-CA§ion=cesp
Default Assumptions For Asset Allocation, Contributions, and Withdrawals
The education plan grows with contributions, grants, and investment growth, and then is drawn down when post secondary begins. The default assumption is that post-secondary begins at age 18 and continues for 4-years. As a default we plan 4 withdrawals per child but this can be adjusted below. For families the total assets in the RESP are split evenly between children. The estimated withdrawal per child per year is a good estimate of how much your child could expect in the future but it will vary depending on actual investment returns and the child’s tax rate.
Asset Allocation Override: In the table there are a few important things to highlight. One is that the asset allocation between stock/bond is weighted by the age of the children. The goal is to have an asset allocation of 10% stocks and 90% in bonds, fixed-income, or GICs by age 17. We want to “take risk off the table” as the children get closer to post-secondary. This can be adjusted based on your personal risk tolerance. The asset allocation can be adjusted by changing the percentage allocation to stocks. For example, we could change 64% to 75% and see the allocation for bonds also change as well as the assumed rate of return.
Contribution Override: The default assumption is that the planned contributions will maximize the grant each year, but these can be adjusted based on your actual contribution plan. For example, we could change contributions of $2,500 per year, which maximize the annual grant, to $5,000 per year 1-year which would maximize both the current year's grant and the catch-up contribution. By recalculating we can see the impact on the estimated withdrawal amount.
Withdrawal Override: It is also possible to adjust the withdrawal timing and amount if you expect the withdrawals for each child to be different. For example, additional withdrawals could be added for a middle child attending graduate school for 2-years… or a larger withdrawal could be added for one child as well.
Lifetime Contribution Limit
One important thing to highlight is that there is a lifetime contribution limit of $50,000 per child, so although it only takes $36,000 in total contributions to maximize the grant over 14 and a half years there is an opportunity to add an additional $14,000 to the RESP. We recommend focusing on available TFSA and RRSP contribution room before adding more to the RESP. If both TFSA and RRSP are maximized then adding additional funds to the RESP could be an opportunity, again, we recommend working with an advice-only financial planner to take advantage of this opportunity in your plan.
