When should you open an RESP for your child?

As I recall being a new parent, obtaining a social insurance card for your child would rank well down on the list of things that need doing.

Find time, anyway. You need a SIN card to open a registered education savings plan for a child. The sooner you get the RESP open, the more you’ll have when your child starts college or university.

A reader recently asked about the best age to start an RESP. How about 30 days old or something like that? Whoever you deal with, you’ll need that SIN to proceed.

An RESP calculator clearly shows the benefit of getting the jump on RESPs early. Let’s assume a newborn has an account opened and annual contributions of $2,500 are made until the child starts a postsecondary education at the age of 18. That’s enough to attract the maximum from the Canada Education Savings Grant (CESG), which pays 20 cents on the dollar up to $500 a year and $7,200 over all.

With a 5-per-cent annualized net return, a combination of contributions, maximum grant money and investment gains produce an RESP of $78,790. Starting at two years old, the value of the RESP falls to $65,915. Starting at the age of 5 produces an RESP of $48,853. This amount reflects total grant money of $6,500 – short of the full available amount because of the delay in getting the RESP started.

Money can be tight when you have a child, so let’s temper this advice with a recognition that making a $2,500 contribution every year may not be realistic. Try contributing what you can and then catching up later to scoop up as much of that $7,200 in grant money as you can.

CESG is available to RESP beneficiaries until the end of the year they turn 17, but it will only be paid if the RESP meets certain requirements for contributions being made before the child turns 15 (the idea here is to promote long-term saving and discourage last-minute scrambling).

If you’re a late starter on RESPs and contribute more than $2,500 in a year, you can get as much as $500 in additional grant money. Note to middle- and lower-income parents: Additional grant money is available on the first $500 in annual RESP contributions. The lifetime $7,200 limit applies.