As my kids tear into their toys on Christmas morning, scattering Lego bits to the furthest corners of our home, there's at least one gift that I won't be prying from my cat's teeth: the year-end RESP contribution.
Long after Barbie's shoes have been sucked up the vacuum, their RESP money will still be growing, thanks to government grants and compounding interest. What could be more magical than that? (Hint, hint, grandparents.)
Mike Holman, author of The RESP Book and the Money Smarts blog, says the end of the year is a good time to top up your Registered Education Savings Plan or get one started, if you haven't already done so. He calls Dec. 31 a "soft deadline" for contributions because although government grants are capped for each calendar year, you can carry them forward and make up for one year of contributions each year.
"You can literally start fairly late," Mr. Holman says. "For example, in the year your child turns 10, you could start the RESP at that point in time and still get all the maximum grants."
It's also a good time to check whether you're on track to reach your savings goals and to rebalance your portfolio. If your child will be starting school in the next five years, it may be time to switch to safer investments.
"One good year-end tip if you're heading into the withdrawal phase, for example, if your child is going to be starting school next year, is to review the rules for withdrawals and make sure you understand how they work because there are definite tax implications," he adds.
Mr. Holman offers some additional year-end RESP tips:
Keep your RESP money safe
Many parents start an RESP account when their child is young and invest heavily in equities because of the long investing time horizon. Make sure that as the child gets older, you reduce the equity exposure and lower the risk. It is important to make sure that the money is going to be there when the child needs it.
Contribute right to the bitter end
RESP grants can be earned on contributions made up until Dec. 31 of the year the child turns 17, even if the child is already attending college and making withdrawals from the RESP. This is an easy way to get a quick 20-per-cent return on your money.
Verify you are getting the proper grant
Make sure you are getting the basic 20-per-cent RESP grant on all your grant-eligible contributions. Keep in mind, the grant can take up to two months to appear in the account. If the primary caregiver's family income is below $40,970, you should be getting a 40-per-cent grant on the first $500 contributed each year. If net income is between $40,970 and $81,941, you should get a 30-per-cent grant on the first $500 contributed each year. If you live in Quebec or have lived in Alberta, you might be eligible for provincial RESP grants as well.
Don't over-contribute
The maximum RESP grant payable per year is $500 and you can catch up one missed year at a time for a total of $1,000 of potential grants per year. However, if you contribute too much, you won't receive any grants on the excess contributions.
Talk to other contributors
If there is more than one RESP account for your child, co-ordinate contributions with the other account owners to ensure you can take advantage of the maximum grant every year.
Remember the rule of 7,200
The maximum lifetime grant per child is $7,200. If you are not sure how much your child has received in the past, phone the HRSDC RESP department at 1-888-276-3624.
Dianne Nice