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RESP 21 Year Plan

RESP 21 Year Plan

Registered education savings plans managed effectively will allow for $7,200 in the Canada Education Savings Grant (CESG) for education purposes towards a child’s education that can grow tax deferred.

The CESG is based on 20% of a $2,500 contribution made each year and available until the calendar year in which the beneficiary turns 17.  Contributions must commence prior to the year in which your child turns 15. The maximum contributions per RESP account is $50,000 per child.  Note excess contributions are subject to tax of 1% per month, compounded.

In addition – to someone at the highest tax bracket, the grant would have a potential tax savings of an estimated $17,780 as the gains on the withdrawals (based on a 5% annual gain on the investment that would otherwise be taxed at 31.7% in the hands of the contributor) would be taxed in the assumed lowest tax bracket of the child.

To receive the maximum benefit, a contribution of $3,333 per year for 15 years would need to be made for a total of $50,000.  The contributions would grow to an estimated $90,866 at the end of year 17 based on a 5% return each year.

Note you will need to provide some documentation that the beneficiary is going to an approved school to make withdrawals, however the RESP can stay open for 35 years from the date it was initially opened.  If the beneficiary does not go to an approved school, there are taxes and penalties on the withdrawals.  However, there are strategies in place to help minimize this.

Withdrawals on contributions are not taxed.  Withdrawals on the accumulated income, including grants, interest, dividends and capital gains are taxable to the recipient.  Students will have the tax advantage of the personal exemption, tuition tax credits and a lower tax brackets.  Withdrawals while the student is at these lower tax brackets are usually the most advantageous.

In our example, if the student were to take $14,025 into income in each of years 18, 19, 20 and 21, with the remaining $50,000 contribution returned to the initial contributor in year 21 – the tax savings (assuming the contributor is at the highest tax bracket and the student has no other income) would be approximately $17,780 in addition to the $7,200 in CESG provided to the beneficiary.

RESP 21 Year Plan

Opening Balance0
Annual Contribution $3,333
ROI5%
Withdrawals at Year 18$14,025
 OpeningContributionReturnCESGWithdrawalBalance
Year 1- $3,333 - $500- $ 3,833
Year 2$3,833 $3,333 $192 $500- $ 7,858
Year 3$7,858 $3,333 $393 $500- $ 12,085
Year 4$12,085 $3,333 $604 $500- $ 16,522
Year 5$16,522 $3,333 $826 $500- $ 21,182
Year 6$21,182 $3,333 $1,059 $500- $ 26,074
Year 7$26,074 $3,333 $1,304 $500- $ 31,211
Year 8$31,211 $3,333 $1,561 $500- $ 36,605
Year 9$36,605 $3,333 $1,830 $500- $ 42,268
Year 10$42,268 $3,333 $2,113 $500- $ 48,215
Year 11$48,215 $3,333 $2,411 $500- $ 54,459
Year 12$54,459 $3,333 $2,723 $500- $ 61,016
Year 13$61,016 $3,333 $3,051 $500- $ 67,900
Year 14$67,900 $3,333 $3,395 $500- $ 75,128
Year 15$75,128 $3,333 $3,756 $200- $ 82,418
Year 16$82,418 -$4,121 -- $ 86,539
Year 17$86,539 -$4,327 -- $ 90,866
Year 18$90,866 -$4,543 -$14,025 $ 81,384
Year 19$81,384 -$4,069 -$14,025 $ 71,429
Year 20$71,429 -$3,571 -$14,025 $ 60,976
Year 21$60,976 -$3,049 -$14,025 $ 50,000
$50,000$48,898$7,200 $56,098
Tax Savings$17,783

This information is for discussion purposes only and should not be considered professional advice. There is no guarantee or warrant of information on this site and it should be noted that rules and laws change regularly. You should consult a professional before considering implementing or taking any action based on information on this site. Call our team for a consultation before taking any action.

Nizam Shajani

I enjoy formulating plans that help my clients meet their objectives. It's this sense of pride in service that facilitates client success which forms the culture of Shajani LLP.

Shajani Professional Accountants has offices in Calgary, Edmonton and Red Deer, Alberta. We’re here to support you in all of your personal and business tax and other accounting needs.