$2,500 into the RESP… and then what?

Lessons from 17 Years of RESP Contributions

$2,500 into the RESP.
$2,500 into the RESP.
$2,500 into the RESP.

For 17 years, you’ve diligently contributed the recommended $2,500 a year into your child’s Registered Education Savings Plan (RESP), and now the moment has arrived: it’s time to start making withdrawals.

Last weekend, the Mahs celebrated our newest family member – Lucy-Maria, my 4th great-niece. She’s absolutely adorable, and her arrival sparked a lively family lunch conversation about the rising cost of post-secondary education.

Back in the 1990s, my undergraduate degree at the University of Toronto cost my dad about $5,000 – in total. For my nephew and his girlfriend, tuition a decade ago ran $15,000 per year. According to Statistics Canada, Ontario universities charge between $6,000 and $17,000 annually for in-province students. For a four-year degree, you’re looking at a total cost of approximately $75,000, and that may or may not cover all of residence, textbooks, travel, or late-night Uber Eats.

This is why we save early and often.

---

RESP Refresher: Why $2,500?

• Automatic 20% Return
  The first $2,500 contributed each year is eligible for a 20% match from the government – that’s a free $500, up to a lifetime maximum of $7,200 through the Canada Education Savings Grant (CESG). Who doesn’t love free money?
• Tax-Efficient Growth
  RESP earnings grow tax-deferred, and when withdrawn for school, the income is taxed in the student’s hands – typically at a low rate, or not at all.
• Built-in Flexibility
  RESPs can stay open for 31 years, allowing for future studies like graduate school. But what happens if the student doesn’t pursue further education right away?

---

What Happens After Graduation?

Many of our clients find there’s still money left in the RESP even after undergrad. Here’s what to know:

• Contributions (Principal): Can be returned to you, tax-free.
• CESG (Grant): Any unused portion must be returned to the government.
• Growth: If not used for education, it's taxable when withdrawn unless you transfer it to your RRSP (subject to room), deferring the tax bill.

This is where planning becomes important – to ensure those hard-earned gains don’t get clawed back unnecessarily.

---

Is It Better to Invest $2,500/year or a Lump Sum Early?

We’re often asked: Should I contribute $2,500/year to maximize the government grant, or invest more upfront – say, the full $50,000 – if I have the cash?

While the 20% CESG match is compelling, the math tells a different story. If you invest the full $50,000 early and let it compound at a 7% annual return over 17 years, you could end up with over $60,000 more than if you stretched out contributions at $2,500/year.

And remember: it would take 20 years to contribute the full $50,000 at $2,500/year, but CESG grants only apply until the child turns 17. To fully utilize both the $50,000 contribution room and the available grant money, you'd need to contribute approximately $3,333 annually from age 1 to 15.

The key takeaway? Start early and invest for growth. While the CESG provides a helpful boost, the real power comes from compounding over time. If your goal is to maximize what’s available for your child’s education, an early lump sum – invested wisely – can far outweigh the value of stretching it out just to chase the full $7,200 grant.

---

Whether you’re just starting out, mid-way through, or preparing to withdraw from your RESP, we're here to help you navigate your options. With Lucy-Maria's arrival, I’m reminded that planning for the next generation starts sooner than we think – and the time to act is now.

Let’s talk about the smartest path forward.

– John Mah