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Better Late Than Never: Retroactive Grants to Boost your Teen’s RESP!

Written by: Kaleido

September 11, 2014

A number of parents opened an RESP when their child was born; contributing a small amount every month to make sure they would follow through in the long run. Investing a small amount, then forgetting about it so its growth becomes routine is a great way to maintain a savings discipline. However, it makes sense to reassess one’s financial situation along the way to make sure not too much money gets left on the table!

This is the strategy Maryse Breton, Branch Manager for Kaleido in the Eastern Townships, suggests to parents who opened an RESP for their child but didn’t invest a large amount of money. For example, take Justin, who just turned 14. His parents have been saving $20 a month for him since he was born. When he turns 17, Justin's parents will have accumulated $4,080 in capital and $1,224 in government grants, which isn’t bad at all. But here’s the twist, Justin shows an interest for studies in science, which will cost considerably more than the savings accumulated to pay for these.

Fortunately, there is a solution to benefit from a significantly greater leverage effect, namely, the possibility to recover retroactive entitlements to unused grant amounts. As Justin’s parents now have a better financial position, Ms. Breton offers them a way to recover the maximum grant amounts to which they are entitled. Concretely, Justin's parents could contribute an additional $4,760 annually for 4 years (during the years of his 14th, 15th, 16th, and 17th birthdays)1. In doing so, Justin would have additional savings of $19,040, and receive $5,712 more in grants from the provincial and federal governments. A most beneficial investment!

The short-term financial effort is a reality. But given the fact that Justin’s parents will quickly recover their investment2, they will have the means to finance their son’s education or use the money as they please... all while having received amounts for Justin’s studies that are more than interesting.

1. The contributions made to an RESP during the year in which the beneficiary reaches 16 or 17 years of age are subject to certain conditions with regard to the payment of government grants. Refer to the prospectus or contact an authorized representative for more information.
2. The time at which the subscriber recovers his capital varies according to the plan chosen. For a group plan, the refund occurs when the beneficiary reaches 17 years of age (maturity date). Under the INDIVIDUAL plan, the refund is made when the beneficiary satisfies the plan’s eligibility criteria.