The lifetime limit on the amount that can be contributed to a beneficiary’s RESPs is $50,000. This includes all RESPs, if the beneficiary has more than one.
While you may contribute more than $50,000, there are tax implications for exceeding the limit.
Although there is no annual contribution limit, keep in mind that the government will only give you the grant top-up for the first $2,500 saved each year, unless you are carrying forward unused contribution room.
RESP Contribution Room and Carry-Forwards
Sort of like RRSPs, RESPs have the concept of “contribution room” which allows you to catch up if you’ve fallen behind. Contribution room allows for $2,500 per year from the time your child is born (not the year you opened the RESP). So, for example if your child was born in 2018 and you opened the RESP in 2021, you’ll start with $7,500 worth of contribution room.
Know the Carry-Forward Rules!
If you started late or contributed less than $2,500/year in previous years, you can carry forward those missed amounts to current or future years. There are rules, however!
Grant Limits on Carry-Forwards
If you are carrying forward contribution room, you may be tempted to use all that room to catch up entirely in one year and to cash in on some big-time grant money. But, it is important to know that the government will only provide a maximum CESG of $1,000 in a given year. Remembering that CESG is based on 20% of your contributions, that means if you contribute more than $5,000 (i.e. $2,500 for the current year + a $2,500 carry-forward) you won’t receive grants for the overage.
You contribute $0 for Years 1-3.
You contribute $7,500 in Year 4.
Result → $5,000 of your contribution is eligible for grants. The remainder ($2,500) is invested in your RESP but is not eligible for grants.
For advice on how to catch up and maximize your grants, contact an Embark Education Savings Specialists. They can help create a plan that is best for you!
Annual Overpayments Don’t Become Credits
Carry-forwards only work one way. Excess annual contributions do not carry forward to future years as credits.
You have saved $2,500 for Years 1-3 of your child’s life.
You contribute $5,000 in Year 4.
You contribute $0 in Year 5.
Result → In Year 4, $2,500 of your contribution is eligible for grants. The remainder is invested in your RESP but is not eligible for grants. In Year 5, $0 is eligible for grants (the overage from Year 4 cannot be applied to Year 5).
Embark is Canada’s education savings and planning company. The organization aims to help families and students along their post-secondary journeys, giving them innovative tools and advice to take hold of their bright futures and succeed.