When Should I Start a RESP?

Ok let’s agree right now that the answer to this question is going to be very different for different families. By rights, I should really call this article “When Did We Start a RESP?”

Why We Didn’t Start a RESP When Our First Child Was Born

I now read many financial websites and blogs: I’m surprised at how many of the writers started RESPs as soon as their child was born. Well, pretty soon afterwards anyway. Your child does need a Social Insurance Number before you can open a RESP so there is some waiting time required.

We didn’t start an RESP then. In fact, we only opened our RESP when our eldest child was 10. Are we sorry we waited? Nope, not at all.

Why Wait to Start a RESP?

Here’s some of the reasons why we waited to open a family RESP for our children:

  • we had a mortgage to pay
  • we procrastinated
  • we didn’t want to spend any time learning about RESPs
  • we had RRSPs to contribute to
  • we had heard horror stories (based on RESP scholarship plans) about huge fees and lost money
  • we had TFSAs to contribute to
  • I was not working for pay for some of the time our children were  young
  • we didn’t know if we wanted to contribute to our children’s education cost formally (with paperwork and frustration and banks involved)
  • we didn’t see the sense in investing in possible future education costs for our children BEFORE investing in inescapable future costs for ourselves such as our pensions

Since you probably disagree with at least 2 of our reasons, you can understand why I said the decision about when to start an RESP is very personal.

Which Month Should You Contribute to a RESP?

Some readers may have landed on this page hoping to find out when as in “which month” they should start a RESP. My suggestion is two-fold:

If you have lots of extra cash, contribute to a RESP at the start of the year. You’ll get the matching CESG faster. And then both your contribution and the grant will have more time to grow, tax free.

If you aren’t sure how the year will go and you don’t have a large cash cushion to draw on, contribute to the RESP near the end of the year when you’re sure it’s a good idea. So long as you contribute before December 31, you are eligible to receive the matching CESG for that year. To be on the safe side, I’d suggest you make your contribution before December 25. Many financial institutions have very limited hours between Christmas and New Year’s which could make it hard to get in and contribute.

It’s Much Easier to Fund a RESP After a Mortgage is Paid Off

When we finished paying off our mortgage we had about $18,000 per year of money to put where it would do the most good.

Think about just how big that number is for a minute.

You could probably pay for one child to attend college or some university programs with just that $18,000 per year. Especially if they live at home, rent a really cheap student ghetto apartment or get good co-op placements while they’re learning.

We used some of this $18,000 in freed-up money to open a family plan RESP.

Why Did We Open a RESP for Our Children?

Our primary reason for opening an RESP was to get the 20% matching Canada Education Savings Grant from the federal government. (For those who don’t know, you can get up to $7200 per child from the government as of the time this was written.)

Given most secure investments only pay 1-2% per year, 20% is great. For example, if we divide the 20% by the 9 years between when we started to contribute to our eldest child’s RESP and when that child will probably start post-secondary education, that’s 2.2% a year.

So even if we left the money in a bank account paying 0% we would be ahead of the game.

And since we didn’t leave the money in a bank account, we can earn our own interest on the investment during those years and also earn interest on the grant money.

You Can Double Up the CESG Each Year as You Catch Up Your RESP Contributions

One thing I learned from the very useful articles Mike Holman has written and posted at Money Smarts is that you can catch up your RESP contributions.

If there were years after your child’s birth when you didn’t contribute the full annual maximum, you can contribute extra in later years.

The way it works is the “usual” contribution this year (2013) is $2500 for one child. That gets a matching government grant of $500.

If you contributed nothing in one of the earlier years, though, in 2013 you can contribute $5000 for that child and get $1000 from the government. If you contribute more than the $5000 that year, though, you won’t get any additional grant.

You can repeat this each year till you get caught up.

For instance, in the year my child turned 10, we contributed $5000 and got $1000.
We repeated this the next year, and the next year and so on.
To get to the maximum $7200, we would have to contribute $36000 in $5000 annual chunks.
That would take 7.2 years.
Unfortunately, you can’t contribute after the year in which your child turns 17, so we will have to forfeit the matching contribution on $1000.

So if you plan to do the same thing we did, try to start when your child is 9!

How Long Does It Take to Get a S.I.N. for my Newborn?

At the time this was written, in BC if you apply at the time you register the birth, and you are a Canadian citizen or permanent resident, it takes about 3-4 weeks.

Like many government items, the time to get a S.I.N. number by routine application to Service Canada can vary quite a bit.

Related Reading

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Did you set up a RESP? When? Would you recommend starting early or playing catch-up later? Please share your views with a comment.

11 thoughts on “When Should I Start a RESP?

  1. Pingback: Despicable Acts and Friday #ShoutOuts

  2. We started early for the likelyhood of paying less tax overall. Investment gains in the RESP are taxed as income for the student, little or no tax. You have a good point financially about paying off your mortgage first, it is hard to beat the sure return of not having to pay interest in after tax dollars. We didn’t consider that at the time but we rented for the first three years after our first child was born and paid off our mortgage quickly (our mortgage payment to RESP contribution was greater than 10:1) so we would have expected to still come out ahead on the RESP. We probably didn’t though, investment returns on our RESP were pretty weak, but that is another story.

    You are right, I disagree with at least two of your reasons for delaying- procrastination and not wanting to spend time learning about RESPs. The good news as you point out is you can partially make up for this by catching up later.

    • Sounds like you made better choices than we did. And congratulations on managing both to save in RESPs and to pay the mortgage! It sounds like you have had a good plan in place. Thanks for sharing your approach!

  3. My wife is 8 months pregnant and we want to start contributing asap, can i open an resp under me and later transfer it to my child?

    • No. You cannot open a RESP until the child is born AND until you receive a Social Insurance Number for the child. You can apply for the SIN as soon as the birth is registered.

      Best wishes to you and your wife!

      • You CAN open an resp without a SIN number…tou have 12 months to provide it. Interesting you are giving advice on resps without actually knowing too much about them.

        • Thanks for this information. I was using information from the Service Canada website. Which financial institution let you open your RESP before receiving your child’s SIN? Do you know if the government can and will issue the CESG and other payments before receiving the SIN or do they wait until the SIN is verified by ESDC as stated on their website?

  4. Hello, thanks so much for the info, it’s very helpful! We’re planning to do exactly like you did for our two children.

    My eldest son is born Aug 2009. I’m planning to start contributing 5000 in Jan 2020 (he will turn 11 by Aug of 2020).

    I will start contributing for my youngest son (born March 2012) in Jan 2023. That means I will be contributing 10000 for four years (2023 to 2026) due to their overlap!

    I’m still going with the Family Plan though, I’ll have to get that sorted out with the Bank. I’m planning to have a self-managed RESP with my bank using the most conservative approach (i’m not a gambler at all except for the lotto, LOL).

    My husband and I are hoping to be mortgage-free by 2023 (fingers crossed).

    I’m so glad I found your site…this is the first time i learned that we could do catch up with RESP….I was gonna start contributing 2500 starting this coming January because I hate not to take advantage of the government grant. My husband and I really appreciate your info! We will delay contributing until 2020, thanks to your article.

    Happy holidays to you and your lucky family! :)

    • Hi, and welcome!

      Doubling up our contributions is working well for us, but I know it’s not for everyone.

      And there’s nothing wrong with opening a plan at a bank and contributing only, say, $100 per child per year at the beginning, if you want to. (The advantage of that is that if you have a plan and contribute $100 a year for 4 years (per child) and something goes very wrong, you can still contribute $5000 in the year your child is 15 and at least get a $1000 catch-up match.)

      I hope you have a wonderful holiday with your family and best wishes for the New Year!

      • I wish people would stop unaciticrlly repeating the OMG, a degree will cost a million bucks! hype, which seems to originate mostly with people trying to sell me sketchy education savings products. We Canadians are lucky that we still have a fairly affordable educational system with a very high floor, quality-wise (i.e., our lowest-status universities are actually pretty decent). Most of us live within commuting distance (hint: live with your parents!) of a pretty good school. Schools could/should be cheaper governments need to step up and match their educated-workforce rhetoric with some cash, and schools need to stop treating huge undergrad classes as cash cows to fund ego-gratifying research centres and monumental buildings. But either moving to a low-tuition locale (Quebec, Newfoundland) for your degree, or delaying moving out on your own, will get you a four-year degree at a price you can cover with some reasonable planning and a part-time job (admittedly not always easy to find). So yes, start the RESP, and fund it early and often. But also start researching schools, fees, programmes, tax breaks, and scholarships. And lean on your elected officials to support good, accessible education. And don’t worry so much!

        • Thank you for sharing your views! (And I hope it helps to vent a bit: I get sick of the fear-mongering too!)

          There are many ways through higher-ed and not all of them are going to be out of reach financially. And most of the people I know have continued their education after they started working, often with their employer paying most of the costs.

          Thanks for reminding us of some of the options our there.

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