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What happens to unused RESP contribution room?
The carry-forward option allows you to benefit from the CESG even if you've delayed investing in an RESP or have been unable to make the required contributions to receive the maximum grant amount each year. With the carry-forward option, you can contribute more in the current year by using contribution room left over from a previous year. However, you’re only allowed to use unused contribution room from one previous year. For example, if you’re contributing in 2022, you will be able to use any unused contribution room from 2021, but you won't be able to use the combined unused contribution room from 2021 and 2020.
Unused grant room is accumulated and carried forward until your child turns 17. However, to be eligible for the grant money, you should open an RESP before your child turns 15 and ensure that you've met the required minimum contribution levels. For example: If you decide to open an RESP account for your child when they turn 9, you’ll have 8 more years to claim the unused contribution room from previous years. You’ll need to contribute $4,500 ($2,500 + $2,000) to receive $900 in government contributions each year and take advantage of the full government grant of $7,200 over the next 8 years (i.e., until the age of 17), You can also opt to double the contribution each year to $5,000 to recoup the full contribution room from a previous year to get the maximum CESG grant of $1,000. Any amount contributed beyond $5,000 will not be eligible for CESG even though contribution room exists. You will have to utilize the remaining unused contribution room in the following years, going back no more than 1 year at a time.
What is the best way to invest in an RESP?
There is no right or wrong way to invest in RESPs. RESPs are designed to help Canadian families save for their children's education. Starting early and making the minimum contribution per beneficiary each year can help you maximize the benefits provided by RESPs. By starting early, you’ll not only be eligible for government grants, but you’ll also be giving your funds additional time to grow.
Can RESP funds be invested?
The overall purpose of RESPs is to encourage Canadians to save for their children's education while also investing in the market to help the economy grow. Those who have sound knowledge of the stock market may decide to open a self-directed RESP account and manage their own investments. You can choose from a wide range of eligible investment products such as stocks, bonds, ETFs, GICs and mutual funds. Alternatively, you can also choose to work with a financial advisor who can guide and manage your investments for you.
Is it worth investing in RESPs?
Investing in an RESP is an investment in your child's future. It also sets a good example for your kids by demonstrating the importance of saving and the value of a good education. If you want to take advantage of government grants and build your savings through investment, consider investing in an RESP. You can learn more about the benefits in this article 5 reasons to invest in RESPs.
How much should I invest in RESPs per year?
There is no annual RESP contribution limit but there is a lifetime contribution limit of $50,000 per beneficiary. How much to invest each year depends on your personal situation – how much money you have to contribute, how old your child is, if you have any unused contribution room carried forward from previous years, etc.
To maximize your potential annual CESG grant limit of $500, where the government adds 20% of your first $2,500, consider contributing up to $2,500 to your RESP per beneficiary per year. If you have unused contribution room from previous years, then you may contribute up to $5,000 per beneficiary per year, to get the maximum CESG grant of $1,000.