As a grandparent, there’s no better feeling than watching your grandchildren grow up and realize their full potential. After all, success is something to be shared and is often had when you have others around you who care.
If you’re interested in nudging your grandchildren in the right direction and helping them pursue their dreams through an education, let’s explore your options:
An Education Savings Plan For the Whole Family
So you want to save for your grandchildren’s education, but don’t know where to begin.
Often the best thing you can do as a grandparent is open a family Registered Education Savings Plan (RESP) if your grandchild doesn’t have an RESP yet.
A family RESP can only be opened by a parent, sibling or grandparent, and has a number of additional benefits when compared to other types of savings accounts. First off, the money you save in one can be put towards any grandchild’s education so long as they’re siblings, meaning that you can spread your savings between your grandchildren based on their needs. It can also help account for new grandchildren cropping up, allowing them to be included in your overall savings plan.
On that note, if you only have one grandchild, a family RESP is often still the best solution for you as it includes all of the benefits of a traditional RESP – it just conveniently future-proofs your plan and gives you more flexibility if you need it. No matter what, you get to enjoy the standard benefits of a registered education savings plan through a family RESP.
Family RESPs at a Glance
Maximum Contribution Limit Per Child: $50,000 across all RESPs
Your Money Grows Over Time: In an RESP, your money is invested and grows tax-free, allowing your savings to compound over time.
Tax-Deferred Savings: Your earnings are only taxed when withdrawn and are done so at your grandchild’s tax rate.
Government Grants To Support Your Savings: The government gives you an additional 20% on your first $2,500 saved every year per child, up to a lifetime maximum limit of $7,200. Do everything right, and this works out to an additional 20% on your first $36,000 saved per child.
Contributing to an RESP as a Grandparent
If a RESP has already been opened for your grandchild, you may simply want to contribute to it instead of opening up your own. This way, your grandchild’s savings can be consolidated into a single account, allowing you to make sure you don’t incur any penalties for saving more than $50,000 for each grandchild amongst plans. This also helps streamline withdrawals and comply with Canada Revenue Agency rules.
Providing a gifted contribution to an RESP set up by the child’s parent is a very popular approach, especially in the early years of parenthood when money can be tight. It’s a great way to provide a gift that lasts a lifetime, instead of, or in addition to traditional gifts.
Are RESP Rules Different For Grandparents?
No, they’re not. Registered education savings plan (RESP) rules are the same for everyone. However, grandparents are one of the only ones, along with siblings and parents, that can create a family RESP for a child.
Can Grandparents Contribute To A RESP?
Yes, anyone can make a gifted contribution to a registered education savings plan (RESP). However, grandparents, along with siblings and parents, are the only ones that can open a family RESP for a child.
If I Open A RESP For My Grandchild, Who Can Contribute To It?
Everyone! A gifted contribution can always be made by anyone to a registered education savings plan (RESP).
Can My Grandchild Have More Than One RESP?
Yes, though we’d recommend trying to consolidate your savings into one plan if possible. This is because the $50,000 lifetime contribution limit per child does not change regardless of how many accounts are opened for them. Should each account exceed $50,000 when combined, you’ll incur heavy tax penalties. Withdrawal rules are also harder to follow when you have multiple accounts.
Can I Use RRSP Funds To Contribute To My RESP?
No, you can’t. All funds in a registered retirement savings plan cannot be moved into a registered education savings plan (RESP) without incurring tax penalties. If funds in your RESP go unused after your grandchild turns 21 or the account has been opened for at least 10 years, you do have the option to transfer them into your RRSP if you are eligible and have the contribution room.
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.