How Does an RESP Cambridge Work? Your Questions Answered

 A Registered Education Savings Plan (RESP) is an account that helps Canadians invest for a child’s post-secondary education. Money grows inside the account tax-free, and you can invest it in whatever you want.

A unique advantage of the RESP Cambridge is that the government will kick in grants as you fund the account: that’s like free money on top of the growth you’ll accumulate from investing. 

The government contributions are only taxed when they’re withdrawn and paid out to the beneficiary, in most cases, your child. As long as they are enrolled in a qualified post-secondary program, the money from government programs and the investment earnings can be paid to them and taxed in their hands. If they don’t have much other income, they won’t pay much (if any) tax.

What can an RESP be used for?

As long as the student can provide confirmation of enrolment in a designated educational program, the funds can be used for any purpose. That means you can pay for tuition, and things like school supplies, backpacks, and student housing with RESP money.

Who can open an RESP Cambridge?

It most certainly doesn’t have to be the person who will be using the money — this wouldn’t make sense, especially if the child is only a newborn. To get started, anyone from parents, grandparents, or other family members and friends can open an RESP account for a child and name them as the beneficiary.

What can an RESP be used for?

How to open an RESP 

You can open an RESP with most financial institutions. This account is most beneficial when used as an investment account (rather than a piggy bank), so consider choosing an institution that offers a diversified portfolio with low-fees. You can open one quickly and easily with CI Direct Investing online. 

You’ll need to have the beneficiary’s Social Insurance Number (SIN) on hand as well as your own. Choose between a family plan, which is particularly great if you have more than one kid, or an individual (non-family) plan which doesn’t require you to be related to the beneficiary.

When should I contribute to an RESP Cambridge ?

The absolute best time to start contributing to an RESP would be as soon as the child comes into this world and gets a Social Insurance Number.

However, that may not be realistic for many Canadians who often feel financially squeezed by child care costs. Day care, diapers, food, baby seats, clothes and toys add up. 

If you want to delay it a bit and you can start making some small payments when the child is older. Once you start putting money into that RESP, you’ll automatically start receiving money from the government. It’s called the Canada Education Savings Grant (CESG) and the government will match 20% of your contributions up to $500 per year, to a lifetime limit of $7,200. Kids from low or middle-income families may qualify for even more. 

Even if you’re not able to contribute, certain provinces will provide extra grants toward education for children who have an RESP. For example, British Columbians can apply for the British Columbia Training & Education Savings Grant for any child between six and nine years old. Keep in mind you’ll need to apply for these provincial grants to make sure you’re not leaving money on the table.

How much should I contribute to an RESP Cambridge?

To make the most of the Canada Education Savings Grant (CESG), you should aim to contribute $2,500 out of your own pocket each year for 15 years — that’s $208.33 per month, per child.

Investing any less means you’re leaving money on the table — but if you contribute more than that optimal amount, you won’t get the advantage of additional grant money.

The good news is, if you are starting late and have missed out on the CESG, you can catch up. The “catch up” is allowed one year at a time, which means you can actually contribute up to $5,000 and get the 20% matching if you have unused grants each year until you use up your unused grants.