Grandparents, Pitch In For Your Grandchildren’s Education With the RESP!
December 9, 2020
Becoming a grandparent is almost as exciting as becoming a parent. Seeing your children start their own family stirs all kinds of emotions, and you’ll be naturally inclined to lend them a hand. This help can take many forms, like babysitting from time to time or preparing an abundance of homemade meals. And as a grandparent, you’ll also probably be thinking about the future; parenthood has taught you that! That’s why you might want to pitch in for your grandchildren’s education in your own way. To do so, opening an RESP as a grandparent is a great starting point! After all, the registered education savings plan, or RESP, allows you to set some money aside for the little ones’ post-secondary education, as soon as they’re born.
Why Contribute to an RESP?
The main perk of the RESP is the government grants which boost your savings. For each dollar paid into the account, the Government of Canada and the Government of Quebec add grants corresponding to at least $0.20 and $0.10, respectively1. For example, if a parent or grandparent invests $100 per month for 6 years ($7,200), the government grants will amount to $1,440 and $720, respectively, for a total of $9,360.
Furthermore, the sums paid into an RESP grow tax free.
How Can Grandparents Put Money in an RESP?
Option 1: Open an RESP
Grandparents can open an RESP for their grandson or granddaughter, even if he or she already has an RESP, since a child can be the beneficiary of more than one plan. For instance, the parents can be the subscribers of an RESP and the grandparents the subscribers of another one. This way, grandparents increase the possibility of receiving the maximum amount in grants available for their grandchildren.
Communication Is Key
If several subscribers open an RESP for a same beneficiary, it’s important that the family communicates efficiently to avoid contributing more than $2,500 per year. Any additional amount simply wouldn’t attract grants.
In addition, if the family contributes too much in different RESPs, the subscribers risk exceeding the $50,000 lifetime contribution limit and having to pay a tax of 1% per month on excess contributions.
That’s when the Kaleido team comes into play. With Kaleido, your savings project is in good hands as the RESP has been their area of expertise since 1964.
Option 2: Give Money to the Parents
Some grandparents might prefer adding to their grandchild’s RESP by gifting money to the parents or by offering gift certificates. If the parents haven’t already opened an RESP for their child, it could be a great opportunity to introduce them to this savings vehicle which has many benefits for families.
In a nutshell, grandparents can pitch in for their grandchildren’s education in two ways: by contributing to their own RESP or by offering money to the parents who already have an RESP for their child. The first option gives grandparents more control over the amounts they contribute, while the second option allows them to reduce the risk of tax complications. Regardless of what you choose, your grandchildren will certainly be happy to know their family is providing financial support and they’ll be able to focus more on school!
You want to discuss the RESP with us?
Contact us at 1 877 710-7377
1. Canada Education Savings Grant (CESG) from 20% to 40% and Quebec Education Savings Incentive (QESI) from 10% to 20%. Based on adjusted family net income. The annual limit is set at $600 for the CESG and at $300 for the QESI. The lifetime limit per beneficiary is set at $7,200 for the CESG and at $3,600 for the QESI. The Canada Learning Bond (CLB) is up to $2,000 per beneficiary and is offered for children born after December 31, 2003, from families who meet the financial criteria. Certain conditions apply; see our prospectus.