Contributing to your grandchild’s RESPs: What grandparents need to know + MORE Dec 1st

At year-end and during tax season, parents and grandparents may have questions about registered education savings plans (RESPs) and their impact on taxes in Canada: Are RESP contributions tax-deductible? Who pays the taxes on RESP withdrawals?

First, a quick refresher on these registered accounts: RESPs provide a tax-advantaged way to invest in your children’s or grandchildren’s future education. Contributions to an RESP account and investments held in an RESP are tax-sheltered as long as they remain inside it. And that’s not the only benefit of opening an RESP. The Canadian government also contributes by matching grants to your child’s RESP through the Canada Education Savings Grant (CESG). (More on government grants below.)

Maximizing RESP contributions and understanding withdrawal rules can save you a lot in taxes while you save for your child’s or grandchild’s post-secondary education. Let’s look at common questions in more detail.

Is an RESP tax-deductible?

Unlike with a registered retirement savings plan (RRSP), RESP contributions themselves do not give you a tax deduction…

If you’re saving up for a child’s post-secondary education, a registered education savings plan (RESP) can’t be beat as a savings tool. No other plan or account in Canada will give you access to thousands of dollars in government grants—free money for your kid’s future tuition and other educational expenses. RESPs also offer tax-deferred growth for your savings and investments. And, if you have more than one child or grandchild, you can benefit from the added flexibility of a family RESP.

What is a family RESP? 

Canadians can choose from two types of RESPs: individual and family. Both are registered accounts, meaning that they’re registered with the federal government, and they allow your savings and investments to grow on a tax-sheltered basis. 

Here are the key features you should know about for both types of RESPs:

The lifetime RESP contribution limit per beneficiary (child) is $50,000. A beneficiary can have more than one RESP (for example, if a parent opens one and a grandparent opens one), however, the maximum contribution is still $50,000…

You’ve likely heard the saying “It takes a village to raise a child.” Well, with the cost of college and university tuition rising every year, it just might take a village to pay for post-secondary education, too. That’s where grandparents can help with registered education savings plans (RESPs). If you’re in the fortunate position of being able to help your grandchild save up for their future schooling, what’s the best way to go about it?

The best way to save for school: Open an RESP

Ideally, your grandchild or grandchildren will have an RESP. Perhaps your own kids have already opened one for them. If not, you can open an RESP—in fact, anyone can become a “subscriber,” including parents, guardians, grandparents, other relatives, and friends. A child can be the “beneficiary” of multiple RESPs, but here’s the key detail to note: the lifetime RESP contribution limit per child is $50,000. Any excess contributions will be taxed, so it’s important for contributors to coordinate their efforts…

Kyle Prevost, creator of 4 Steps to a Worry-Free Retirement, Canada’s DIY retirement planning course, shares financial headlines and offers context for Canadian investors.

When a recession is not a recession

This week saw a perfect example of why the word “recession” has now largely been rendered irrelevant. 

Recession notes
Before we get to why all this recession talk can be misleading, here are the facts:

A recession means two consecutive quarters of negative gross domestic product, GDP. (Read my recession explainer from a year ago). In the past few years, several economists argued about whether the definition of recession should be that simple. Now, there’s also the term “technical recession” to describe two consecutive quarters of a contracting GDP, while reserving the generalized term “recession” for a vague set of parameters that include unemployment and whatever else they want to include. Three months ago, Statistics Canada told us that our GDP had contracted 0…