Maximizing RESP front-loading without sacrificing Canada Education Savings Grant

We all know that post-secondary education is getting more and more expensive. Fortunately, the Canadian government created the Registered Education Savings Plan (RESP), a tax-deferred investment account to help families pay for a child’s post-secondary education. 

Note: by post-secondary, I am referring to education after high school, that includes trade schools, colleges, CEGEP (publicly funded colleges in Quebec), universities, and apprenticeship programs.  

Despite writing a lot about investments and how to be as tax efficient as possible by utilizing RRSP and TFSA, I haven’t written many posts about the RESP. Like RRSP and TFSA, RESP is yet another excellent registered account that you can utilize to help grow your net worth while deferring taxes. 

Furthermore, RESP is an excellent way to save for your child’s post-secondary education and take advantage of the free money from the Canadian government.

Recently I came across an idea that I haven’t paid much attention to – front-loading the RESP while maximizing the Canada Education Savings Grant (CESG). 

What is an RESP?

Before we get into the front-loading idea, let’s go over the basics of RESP.

Per the Governement of Canada, any adult can open an RESP account for a child. This includes parents, guardians, grandparents, other relatives, and friends. There are three participants that you should be aware of in an RESP:

1. The subscriber: this is the person who opens and funds the RESP. 
2. The beneficiary: this is the person who will get the money from the RESP to pay for post-secondary education. The beneficiary is usually a child but can be an adult as well. 
3. The promoter: the financial institution where you open the RESP. For us, we use Questrade for our kids’ RESPs. You can open an account with Questrade using my referral code and get up to $250 bonus cash. Or enter referral code 826124747428063 when sign up.

How does RESP work? 

Similar to an RRSP, the money you put into an RESP grows tax-deferred. Unlike RRSP, the money you put in an RESP is not tax deductible.

The key benefit of an RESP is the money inside it can grow tax-deferred. To incentivize RESP, the Canadian government and some provinces provide grants to an eligible child. These grants are tax-free and the money can also grow inside the RESP.

The three grants available to Canadians are:

• The Canada Learning Bond (CLB), up to a lifetime maximum of $2,000. Please note that CLB has an income level requirement which you can find out more about it here. You don’t need contributions to the RESP to get the CLB (you just need an RESP).  

• The Canada Education Savings Grant (CESG), up to a lifetime maximum of $7,200. Typically up to $500 per year. Eligible children from families with middle or low income could receive up to another $100 per year. A very important factor to know is that the CESG is available only until the end of the calendar year when a child turns 17. Also, you must contribute money to the RESP to receive the CESG. If you miss CESG one year or more, you can catch up by contributing additional money. 

• Any provincial benefits. For example, BC has the British Columbia Training and Education Savings Grant (BCTESG) for an additional $1,200 per eligible child. Quebec also has a program for a refundable tax credit with a lifetime maximum of $3,600.  

There’s an RESP lifetime contribution limit of $50,000 per beneficiary. This limit applies to all contributions made to all RESPs for a beneficiary, regardless of the number of RESPs. There’s also no annual contribution limit but to maximize CESG, it means an annual $2,500 contribution will get you the max $500 CESG amount.

Note: the provincial benefits, since not actual RESP contributions, do not count against the $50,000 lifetime contribution limit. 

To promote the RESP, starting in April 2028, the Government of Canada will automatically open an RESP to receive the CLB for an eligible child. This is for children born in 2024 or later with a valid SIN and not already named as a beneficiary of an RESP by age 4. The CLB is also retroactively extended from 20 to 30 years from the beginning of April 2028 to ensure eligible beneficiaries do not lose out on funds for their post-secondary education 

Like RRSP and TFSA, there’s a very stiff penalty if you contribute more than the lifetime limit. If you do, you have to pay a 1% per month tax on the over-contribution amount until you withdraw it from the RESP. 

Three different types of RESPs

I’ll admit, this part was a bit confusing to me when I started researching RESPs. There are three types of RESP plans and each has their own rules. 

1. Individual RESPs: one child is named as the beneficiary. Individual RESPs can be set up by anyone. 
2. Family RESPs: siblings (by blood or adoption) are named as the beneficiaries. Family RESPs can only be set up by a direct family member like a parent, stepparent, or grandparent. The key benefit is that money in a family RESP is shared. If one child decides not to attend post-secondary education, you can use the money for another child. 
3. Group RESPs: as the name suggests, your contributions are pooled together with other people’s contributions. The money the beneficiary gets depends on how much money is in the group account and the number of children of the same age. Generally speaking, group RESPs should be avoided by all means due to all the fees involved. 

How long can RESP stay open?

The subscriber can contribute to an RESP until 31 years after it was first opened. You can start withdrawing money from an RESP after your beneficiary turns 18 and the beneficiary enrolls in a qualified post-secondary program. 

If the beneficiary doesn’t go to an eligible post-secondary program right away, that’s alright. You can use the funds in the RESP until the end of the 35th year after it’s opened. In some cases, you can extend the RESP lifespan by another 5 years (this usually applies to a beneficiary claiming a disability tax credit). 

Note: based on my research, some places say one can’t contribute once a beneficiary turns 17 and some say that the RESP needs to be closed by age 35. I figured the info from Canada.ca is the most reliable source. 

How do taxes work for RESP withdrawals? 

While the money in an RESP can grow tax-deferred, it’s actually slightly more complicated than that.

The original money you contributed to the RESP is paid out tax-free. In other words, the money you put in the RESP account (up to the maximum of $50,000) can be taken out tax-free. The money can go to the beneficiary for post-secondary education or the RESP subscriber. 

Any income and government grants are called Educational Assistance Payments (EAPs). EAPs are considered income for the beneficiary and therefore taxed when taken out from the RESP. Since students are usually not making much income, if the EAPs are taken out strategically, the beneficiary may pay very little or no tax (students get tuition deductions and credits). 

To clarify, although the grants and investment gains inside an RESP are technically tax-deferred, they are often tax-free when withdrawn from the RESP! 

What can you use RESP funds for? 

Money in an RESP can be used not only for post-secondary education tuition but for a wide range of eligible education expenses. For example, money from the RESP can be used for education expenses like rent, tuition, books, laptops, computers, living expenses, tools, and transportation. There’s no list of approved expenses so it’s really up to your interpretation.

To qualify as education expenses, the beneficiary needs to enroll in a Canadian post-secondary school level program that lasts at least 3 consecutive weeks. Outside of Canada, the program must last at least 13 weeks for non-university or 3 weeks for university.  

When in doubt, you can check a list of designated educational institutions. Since both our children are Danish citizens, they could attend post-secondary educational facilities in Denmark if they wish (the bonus is that Danish post-secondary education is free for Danish citizens and students actually get a monthly allowance from the Danish government!). According to my quick search, many Danish post-secondary schools are listed under the designated educational institutions. 

What if the beneficiary doesn’t attend post-secondary education?

What happens if the beneficiary doesn’t attend post-secondary education? There are a few different options:

1. You can transfer one RESP to another RESP, as long as you don’t exceed the  maximum lifetime contribution limit 
2. You can also transfer to an RRSP. The maximum amount you can transfer from an RESP to an RRSP is $50,000. You must have sufficient RRSP contribution room to do this.
3. CESG can be shared with siblings if they have the CESG room available. Otherwise, the money must be returned.
4. Since CLB is tied to the beneficiary, if it’s unused, it must be returned. 
5. You can close the RESP. All grant money must be returned to the government. Any personal contributions (up to a maximum of $50,000) will be returned to the subscriber tax-free. Any gains you earned in the RESP (i.e. accumulated income) will be taxed at your marginal tax rate plus an additional 20% (12% if the subscriber lives in Quebec). You can also donate the interests/gains to a designated educational institution. Typically this is the least preferred option

RESP Rules 

Before I dive into the front load and maximizing RESP details, here’s a quick summary of RESP rules.

• There’s no yearly contribution limit for RESPs. You can have as many RESPs as you wish per beneficiary. However, there’s a $50,000 lifetime contribution limit per beneficiary. If you have multiple RESPs, make sure you track how much you have contributed so you dno’t over contribute. 
• The RESP can remain open until the end of the 35th year after it was first opened. The subscriber can continue to contribute to the RESP until 31 years after it was first opened.
• The Government of Canada will match 20% of your annual contributions, up to a maximum of $500 per beneficiary. This grant is called the Canada Education Savings Grant (CESG). The CESG lifetime limit is $7,200.
• If you’re eligible based on family income, the Canada Learning Bond (CLB) can add up to $2,000. The government will contribute $500 in the year the RESP is opened then $100 each year until the child turns 15. 
• The most tax efficient way for using RESP money is to use the money for post-secondary education expenses. If the beneficiary doesn’t attend post-secondary education, the money can be transferred to someone else but there are various rules you must follow. 
• Over contribution has a penalty of 1% per month tax on the over-contribution amount until you withdraw it from the RESP. 

How to max out RESP

If you do a quick calculation, to receive the max $7,200 CESG, you need to contribute $2,500 every year for 14.4 years for a total of $36,000. 

• You would contribute $2,500 from years 1 to 14 (basically open an RESP when the year the beneficiary is born) to get $7,000. Then in the last year (year 15), you’d contribute $1,000 to get the final $200. 

Many people think that by contributing $2,500 per year you will be able to max out the $50,000 RESP contribution lifetime limit by the age of 19 when a child typically starts post-secondary education, but that’s not the case (it’d take 20 years to max out the $50,000 limit at $2,500 per year contribution). Unfortunately, we didn’t pay too much attention to RESP details so we have been contributing $2,500 per year to kids’ RESPs.

With an RESP lifetime contribution limit of $50,000, the question is – how do you max out the RESP? What should you do with the other $14,000 and still receive the full $7,200 CESG?

The best option is to front-load the RESP by contributing $16,500 the year you open the RESP. Basically the $2,500 to receive the CESG and front load the RESP by $14,000. Then each year you’d contribute $2,500 until year 14 to receive the max $7,200 CESG. The math would look something like this:

Year	Contribution	Total Contributions	CESG	Total CESG
1	$        16,500	$        16,500	$        500	$           500
2	$          2,500	$    19,000	$    500	$    1,000
3	$          2,500	$    21,500	$    500	$    1,500
4	$          2,500	$    24,000	$    500	$    2,000
5	$          2,500	$    26,500	$    500	$    2,500
6	$          2,500	$    29,000	$    500	$    3,000
7	$          2,500	$    31,500	$    500	$    3,500
8	$          2,500	$    34,000	$    500	$    4,000
9	$          2,500	$    36,500	$    500	$    4,500
10	$          2,500	$    39,000	$    500	$    5,000
11	$          2,500	$    41,500	$    500	$    5,500
12	$          2,500	$    44,000	$    500	$    6,000
13	$          2,500	$    46,500	$    500	$    6,500
14	$          2,500	$    49,000	$    500	$    7,000
15	$          1,000	$    50,000	$    200	$    7,200

The thing with this “best strategy” is that $16,500 is a lot of money to save up for, especially if you consider that the parents may need to contribute to RRSP and TFSA as well. For example, if the child is born in 2025 and both parents are looking to max out TFSA, RRSP, and also utilize the RESP front load strategy, they’d save and put away $62,900 (assuming each parent earned $90k in 2024, giving them $16,200 in RRSP contribution limit in 2025). If you and your partner have higher income, you’d need to save even more money to max out these three registered accounts. 

I’ll fully admit that we didn’t utilize this front loading strategy. In fact, I didn’t even think about it until recently. In case you’re wondering, we have contributed the following for each child and the respective CESG received

	RESP Contributions	CESG Received	Lifetime remaining	Eligible CESG remaining
Kid 1.0	$32,500	$6,500	$17,500	$700
Kid 2.0	$25,000	$5,000	$25,000	$2,200

• We invest all this money in XEQT. 

Since we haven’t “front loaded” either RESP, we should seriously consider contributing more than $2,500 over the next few years and try to “mid-load” the $14,000. For example, we can consider contributing an additional $2,500 or more each year until we max out the $14,000. 

Now, do I wish that we had front loaded both RESPs? Absolutely. But the reality is, even if we knew about this idea when Kid 1.0 was born, we didn’t have enough funds to front load the RESP that year. The same was true when Kid 2.0 was born.

Could we have mid-loaded their RESPs by contributing a few thousand dollars more in the last number of years and taking advantage of the bull market? Absolutely!  

Oh well, you live and learn!

One thing to mention is that there are very few parents who would be in a financial position to pull off the $14,000 front loading strategy. The reality is, mid-loading is probably more manageable for most parents. 

After doing a bit more number crunching, our plan is to contribute more than $2,500 over the next few years for both children and try to max out the RESP lifetime $50,000 contribution limit as early as possible while still capturing the max $7,200 CESG.

What about catching up on RESP contributions? 

What if you contributed less than $2,500 in an RESP every year or did not contribute at all? Can you still take advantage of the free money from CESG?

Absolutely! 

The good thing about CESG is you can carry forward the $500 per year maximum amount. The only catch is that you can only receive up to 20% of the contributions up to $5,000 each year.

Phrasing it differently, you can only get up to $1,000 of the CESG in an RESP per calendar year. So if you have a child who’s five years old and you haven’t contributed to a RESP at all, you’d have five years’ worth of CESG ($2,500) available. However, you can’t just contribute $12,500 in one year and expect to get the full $2,500 CESG, you can only get $1,000 CESG max per calendar year. 

Since CESG is only available until age 17, if you contribute to an RESP too late, you will miss out on the full $7,200 amount. 

When is the latest age to start contributing to an RESP while still being able to get the max CESG amount?

Based on my quick calculation, the answer is 10 and the minimum annual RESP contribution.

Age	Contribution	CESG	CESG Total
10	$5,000	$1,000	$1,000
11	$5,000	$1,000	$2,000
12	$5,000	$1,000	$3,000
13	$5,000	$1,000	$4,000
14	$5,000	$1,000	$5,000
15	$5,000	$1,000	$6,000
16	$5,000	$1,000	$7,000
17	$1,000	$200	$7,200

In this scenario, you’d contribute $36,000 to the RESP, with $14,000 contribution room left. In order to max out the RESP lifetime limit, you could add $1,750 per year during these 8 years to look something like this: 

Age	Contribution	CESG	CESG Total
10	$6,750	$1,000	$1,000
11	$6,750	$1,000	$2,000
12	$6,750	$1,000	$3,000
13	$6,750	$1,000	$4,000
14	$6,750	$1,000	$5,000
15	$6,750	$1,000	$6,000
16	$6,750	$1,000	$7,000
17	$2,750	$200	$7,200

Alternatively, you can “front load” (or mid load if you prefer to call it that way) the $14,000 at age 10 to allow for the money to compound longer. 

Where to open RESP?

Where can you open an RESP? 

First of all, stay far away from group RESP. Some group RESP providers are Canadian Scholarship Trust Foundation, Universitas Financial, Heritage Education Funds, Knowledge First Financial, and Children’s Education Funds Inc. If you do a quick Google search, you’ll find that there are many lawsuits against these group RESP providers.

It is best to open either individual RESPs or family RESPs at a financial institution. You can open an RESP with just all the common financial institutions like RBC, TD, and BMO. You can also open RESPs with online discount brokers like Questrade, Wealthsimple, and National Bank.

At the time of writing, Wealthsimple only offers managed RESP. Self-directed RESP isn’t available yet. Therefore, our children’s RESPs are with Questrade. 

A few additional things to consider 

Although front loading $14,000 in Year 1 of the RESP will allow one to take advantage of compound interest, it is not for everyone. Not every parent is financially in a position to drop $14,000 to their newborn, considering all the different expenses Canadian families face.

Therefore, I think the second best strategy is to mid-load the $14,000 and spread it over a few years.

Another thing to consider is that you want to take care of your retirement. Yes, it may be important to have money set aside to fund your children’s post-secondary education, but you shouldn’t do that at the expense of your retirement. The thing is, there are many ways for a child to fund their post-secondary education. For example: 

• Grants and scholarship
• Bursaries
• Student loans
• Part-time work
• Co-op programs

For parents, I believe it is OK to be slightly selfish and ensure you take care of your retirement first. After all, you don’t want to burden your child by not having enough money for your retirement.

Therefore, rather than focusing on funding a child’s RESP, I believe parents should consider contributing to their TFSAs and RRSPs first before contributing to the RESP. 

Summary – Maximizing RESP front-loading without sacrificing Canada Education Savings Grant

In summary, it is very worthwhile to contribute to an RESP, especially considering the tax-deferred/advantageous nature and the grants from the Canadian government. I would recommend every parent open up an RESP and start saving money for post-secondary education costs for their children.

In terms of maximizing the RESP lifetime contribution limit of $50,000 without sacrificing Canada Education Savings Grant, it is a good idea to front load the $14,000 portion as early as possible if you have the money to do so. If you aren’t able to contribute $14,000 then it’s a good idea to spread out that money over a few years. 

Remember, the max RESP contribution is $50,000 and the Canada Education Savings Grant (CESG) has a maximum amount of $7,200 per child. It is important to remember that CESG is only available until the end of the calendar year when a child turns 17.