[riamo]

what is the formula to optimize resp grants and maximize returns (front loading investments early on for compounding)?

this link is outdated: http://www.milliondollarjourney.com/optimizing-resp-contributions.htm

it does not take into account the new 50,000 limit and no annual limit contributions

so what is your formula to maximize resp (if contributing from day 1 of baby)

thanks all!

 

[FrugalTrader]

riamo, you can contribute $50k in one year, but you lose out of CESG from the government on an annual basis. Personally, to maximize the CESG, I contribute $2500/year which gives me $500 from the govt.

 

[DavidJD]

Depends how old your kids are too. Someone in my office has two kids and some unused contribution room. He got one kid (who was qualified as a student) to withdraw $2,500 at the end of December 2008 and another $2,500 in the new year (2009), from earlier contributions (again he had unused room) and reinvested both amounts in their respective ('08 & '09) year under his younger child's name (obviously a shared RESP account - this is also wise to keep maintenance costs/fees down) and got another $500/per year for the recontribution. This is one way to maximize your return and cash in on some grant funds for older children. Also the ages for children is really high (above 18) so any parent should look into it.

Otherwise ONLY contribute $2,500/year/child and get the maximum $500/year/child upto the $7,200 max available. Pointless to add more beyond that.

Lastly if your holdings offer a DRIP I would suggest that rather than accumulating cash and/or making costly trades in an RESP, and let it compound and dollar-cost average your child's way to the Ivy League school of your their choice.

 

[HaroldCrump]

Otherwise ONLY contribute $2,500/year/child and get the maximum $500/year/child upto the $7,200 max available. Pointless to add more beyond that.

Why? Don't you want the tax-free growth of your education savings?
Also, lower or almost no taxes upon withdrawal.

 

[DavidJD]

Ooops - forgot to add that the $2,500 (X 2) withdrawals were exposed to be partially taxed (interest and grant amount only is taxed) by GRC as the older student received it as an income, but the student had very low income (each year) and paid no tax as a consequence.

 

[doc]

RIAMO:

In order to maximize CESG and maximize frontload would this schedule make sense? My situation is that for the first two years (2008, 2009) I did not contribute. However, I understand that I can make it up (to a max 1000 per year). Thus, the 2010, 2011 CESG's at 1000.

In this example, after year 14, no further contributions since everything is maxed.

Year Age RESP CESG
2008 0 0 0
2009 1 0 0
2010 2 18000 1000
2011 3 5000 1000
2012 4 2500 500
2013 5 2500 500
2014 6 2500 500
2015 7 2500 500
2016 8 2500 500
2017 9 2500 500
2018 10 2500 500
2019 11 2500 500
2020 12 2500 500
2021 13 2500 500
2022 14 2000 200
2023 15
2024 16
2025 17
2026 18

My contributions 50000
CESG contributions 7200

Does this work...

 

[gwcanuck]

doc - yes your schedule works.

But to DavidJD's comment about why bothering to exceed the contribution limit to get maximum grants - I kind of agree. If you already max out your RRSP and TFSA and are making accelerated mortgage payments and can afford to front end load the RESP, then go ahead. Not many are in that position.

You're much better off to max out your RRSP first for the tax deduction. The RESP will be pretty big with just the $2500/yr until the max grant is reached. More cash than I got for university.

Personally I put in $5k/year for my two kids, and any cash gifts from relatives that they want to put towards their education I use to front-load the RESP.