Welcome to Million Dollar Journey! If you're new here, you can learn about me and even follow my net worth updates. A great place to start reading is with the popular articles located in the right side bar. If you would like to join thousands of others and keep up with the free daily updates, you can subscribe to the RSS feed via reader or E-mail.

Optimizing RESP contributions

Written by FrugalTrader on Feb 27, 2007 filed under RESP

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).

4 Comments, Comment or Ping

1. Mike

I’m a huge resp fan but putting that much $$ in might guarantee that you end up with too much in the account. That’s not the worst thing in the world but for those of us with mortgages etc I’d rather try to put the ‘right’ amount in.

Feb 27th, 2007 @ 8:42 am
2. gillian

I know nothing about investing. I opened individual RESP plans for my little ones (aged 5, twin 3 year olds, and 3 months - all boys:) through a family member at one of “those” RESP companies. I chose this because my principal is guaranteed - are any of these other ways to invest guaranteed?

Jun 24th, 2008 @ 6:45 pm
3. FrugalTrader

gillian, first congrats on the kids! Sounds like you have a busy schedule. :) With a self directed RESP account, there are no guarantees unless the money is placed into a guaranteed certificate (GIC). The problem with principle guarantees is that 18 years down the road, the original principle will be worth less due to inflation.

If you don’t me asking, what kind of fees do you have to pay for your RESP account? Are there any special terms and conditions?

Jun 24th, 2008 @ 10:58 pm
4. Me Contra

yes, there are ways to invest guaranteed without going through “those” companies…simply open a self-directed RESP and buy government bonds or a Fund that invests in the same from a reputable company (i.e. TD). It’s the same thing they do, but you save on a lot of fees and other headaches.

read more in my blog
http://mecontra.blogspot.com/2008/09/resp-issues-with-usc-resp-heritage-resp.html

Sep 19th, 2008 @ 5:32 pm