I was doing some reading on Tim Cestnick’s site today and came by a great article on optimizing RESP contributions that I thought I’d share with you. For those of you who don’t know who Tim Cestnick is, he is a one of the most renowned Canadian tax authorities in Canada. He’s written a few tax related books, and makes regular appearances on ROBTV. Tim has come up with a plan to optimize your RESP contributions.
..The goal is to accomplish three things simultaneously:
- (1) contribute the maximum $42,000 to the RESP,
- (2) receive the maximum $7,200 in CESGs, and
- (3) get the money into the RESP as quickly as possible to maximize the tax-free growth in the plan.
You can accomplish this by doing the following:
- Contribute $4,000 a year for the first three years of the child’s life ($12,000 in contributions)
- Contribute $2,000 a year up to and including the year in which the child reaches age 17 ($30,000 more in contributions, for a total of $42,000 in contributions). Not only will this maximize the contributions to the RESP, but it will net you the full $7,200 in CESGs (18 years of contributions at $400 in CESGs a year), and will get money into the RESP as quickly as possible.
Of course, this optimization technique is for those who plan on having children or have newborns and plan on maximizing the RESP strategy. In my article about RESP’s, I was leaning away from using RESP’s, but the readers here have convinced me otherwise (read here).