Being a priority for parents, guardians, and even grandparents, securing the future of a child through education can be one of the best tools available to Canadian families in saving toward post-secondary education: the Registered Education Savings Plan (RESP). What happens, though, when multiple family members want to contribute to this very important savings vehicle? Can you have more than one RESP for the same child? Let’s explore this question in greater detail and understand how it works for Canadian families.
Understanding the Basics of an RESP
Now, before I launch into whether you’re allowed to open more than one RESP for the same child, it would be helpful to first understand what an RESP is and how it works. An RESP stands for Registered Education Savings Plan Canada. It’s a way for you, as a parent, guardian, or contributor, to save for your child’s post-secondary education. There are many benefits to such a plan that make this such a great strategy for long-term savings- it might be tax-sheltered growth on your investment and government grants, among other things.
Most families open an RESP simply to receive the Canada Education Savings Grant, which matches up to 20 percent on a maximum of $500 per year from annual contributions for each child. The Canadian government also provides the Canada Learning Bond for low-income families in an effort to help those families save more.
Can You Open More Than One RESP for the Same Child?
The short answer would be yes; more than one RESP could be opened for the same child. That is, parents, grandparents, and even extended family and friends are free to open separate accounts under their own name for the very same beneficiary.
In other words, for example, both parents and grandparents can start their RESPs in the child’s name so that each one makes a contribution to the child’s education. This is highly convenient for a family that pools their resources to fund the complete education of their child. Nevertheless, some rules and restrictions have been imposed upon it.
The Lifetime Contribution Limit for an RESP
It’s still possible to have more than one RESP for one child, but there are lifetime limits per beneficiary. The net contributions for one beneficiary towards all of his RESP accounts cannot exceed $50,000. Even if each member contributes to different accounts, the total contributions among all accounts need to be considered. Over-contributions resulting from exceeding the contribution limit may trigger penalties.
For example, if the parents contribute $30,000 to the RESP on behalf of their child while the grandparents directly contribute $20,000 to a separate RESP, then the lifetime contribution limit would have been reached. Any further other RESP accounts could not be established in the name of that child, and any further contributions made are without penalties.
How Government Grants Work with Multiple RESPs
And yet another reason to consider whether to open more than one RESP for the same child is government grants, such as the Canada Education Savings Grant or CESG. The CESG matches 20 percent of annual contributions, up to a maximum of $500 per year per child.
Even with more than one family member who may contribute in separate RESPs, the child still becomes eligible to receive up to $500 in CESG grants annually; lifetime limits instead reach $7,200. This means that having more than one RESP can be acceptable but will never be unlimited grants to the child as a whole-per-account. It is, therefore, important that contributions among family members be coordinated so as to avoid exceeding limits while maximizing the grants.
For instance, if the parent adds $2,500 to his RESP and his grandparents also add $2,500 to his, only $5,000 of that collectively will qualify to go toward the 20% CESG grant that generates $500 for the year. Any funds contributed after that do not get additional government grant money for that year.
Advantages of Multiple RESPs for the Same Child
Having more than one RESP for a single child offers several benefits for families:
- Flexibility in Contributions: Multiple contributors, like parents, grandparents, or other family members, can contribute separately, making it easier for them to manage their own education savings plan.
- Family Support: Family members who want to help fund a child’s education can do so through their own RESP account, giving them control over their contributions and investments.
- Investment Diversity: Different RESPs may offer varying investment options, allowing contributors to diversify their investments and potentially grow their savings more effectively over time.
- Coordinated Savings Efforts: Families can come together to meet the education savings goals for the child without necessarily relying on one individual to fund the entire Education Investment Plan.
Disadvantages of Multiple RESPs for the Same Child
While there are benefits to opening more than one RESP, there are also some potential downsides:
- Contribution Limit Tracking: The lifetime contribution limit of $50,000 applies to the total across all RESP accounts for the same beneficiary. If not properly tracked, there is a risk of over-contribution penalties.
- CESG Grant Limits: The CESG only applies to a child as a whole, not per RESP account. This means families need to coordinate their contributions to ensure they are maximizing the grant without exceeding limits.
- Administration and Fees: Each RESP account may come with its own administrative fees and investment management costs. Multiple accounts may result in higher overall fees compared to managing a single RESP.
Coordinating Multiple RESP Accounts
If your family has opened multiple RESP accounts for a child, then coordination and communication are necessary. That way, you can write all contributions made in different accounts without making contributions exceeding the $50,000 limit and ensure that the contributions are spread each year to take the most out of CESG grants.
Choosing the Right RESP Provider
Choosing the right RESP provider is an important step in your education savings journey. When evaluating RESP Quotes Online, consider factors such as:
- Investment Options: Look for plans that offer a variety of investment options that align with your financial goals and risk tolerance.
- Fees: Be aware of any administrative fees, account maintenance costs, or other charges that could impact your investment returns.
- Flexibility: Choose an RESP provider that offers flexibility in contributions and withdrawals to ensure that the account works for your needs.
We guide families into making such decisions and give recommendations on RESP providers in your plan for investing in education. Thus, whether you’re opening an RESP or multiple accounts, our team is there to help find the best solution suited to your family’s needs.
Final Thoughts
In order to get an answer to this, there is indeed the possibility of creating more than one RESP for a single child in Canada. However, contributions need to be monitored across all accounts so as not to break the rule on lifetime contributions, which is set at $50,000. Maximum government grants by proper coordination between family members will also ensure that the child enjoys the full potential of an investment in education.
It’s pretty easy: if you have a plan or want to learn more about RESP Quotes Online, we’d be happy to talk to you about it. We understand that planning for a child’s future is perhaps one of the most important things, and our team will do everything in their power to help provide the right education-saving solutions for Canadian families.
