RESP grants explained — how to get the full $7,200

A Registered Education Savings Plan is the rare account where the government simply hands you money. Through the Canada Education Savings Grant, Ottawa adds 20% on top of your contributions — up to $500 per child per year, to a lifetime maximum of $7,200 (CRA). That 20% is an instant, guaranteed return no investment can promise.

The number to remember is $2,500. Because the grant is 20% and caps at $500 a year, contributing $2,500 annually collects the full grant — anything beyond that in the same year earns no extra CESG. Contribute less and you leave grant money unclaimed; contribute far more in one go and you overshoot the annual match. For most families, steady $2,500 years is the whole strategy.

If you're starting late, you're not out of luck. Unused grant room carries forward, and you can collect up to $1,000 of CESG in a single year by contributing $5,000 — one current year plus one catch-up year at a time. Grants are generally payable up to the end of the year the child turns 17, so a late start can still recover a lot of it, just not all at once. Project the balance and the grants you'd collect with the RESP calculator.

Tax treatment is the other half of the appeal. Your contributions aren't deductible, but the growth and the grants compound tax-free inside the plan. When the money comes out for school, the grants and investment earnings are taxed in the student's hands — and a full-time student with little income usually pays little or no tax on them. Your own contributions come back to you tax-free, because they were never deducted.

The thing to plan for is what happens if the child doesn't go on to post-secondary. Unused grants must be returned to the government, and the growth can be withdrawn but is taxed as income plus a 20% penalty — unless you transfer it to an RRSP with available room, which is the usual escape hatch. It's a good reason to keep an RESP for education specifically, and use a TFSA for savings you might need for anything else.