If you have $50,000 available to invest for a child’s future education needs, it may at first seem like a good idea to contribute this full amount to the plan immediately to take advantage of the tax-deferred compounding available in the RESP.
However, it is important to keep in mind that contributing the lifetime limit in the first year of a beneficiary’s life will result in the loss of Canada Education Savings Grant (CESG) funds in subsequent years. In this scenario, only $500 of the CESG will be paid into the plan in the first year.
The lifetime contribution limit on all RESPs is $50,000 per beneficiary, which is in addition to the CESG limit of $7,200. The CESG is paid into a RESP at a rate of 20% of your contributions, up to an eligible annual maximum contribution limit of $2,500 or up to $500 per year in CESG funding.
Case Study
Joe and Wanda are first-time parents that wish to start investing in a RESP for their baby daughter.
After a consultation, Joe and Wanda will deposit $16,500 into an RESP in year one, $2,500 in years two through 14, and $1,000 in year 15 to generate the maximum CESG each year. They will invest the remaining $33,500 in a non-registered investment, withdrawing the annual RESP deposits from this investment.
By taking this approach, Joe and Wanda are able to attract the maximum amount of CESG payments from the Canadian government, while also allowing their hard-earned money to benefit from the magic of compound interest growth.
For more information on how to invest with OZ Capital MIC, please book a call with our National Sales Director Denis Rudenko.
Download the full case study here.
DISCLAIMER: The example presented herein is for illustrative purposes only and is not, under any circumstance, to be construed as an invitation to invest in the OZ Capital MIC. Any offering is made only pursuant to the relevant offering documents and the relevant subscription agreements, all of which should be read in their entirety. No securities regulatory authority of any jurisdiction, including the Ontario Securities Commission, has opined upon the accuracy or adequacy of the material herein, and any representation to the contrary is unlawful. No content is to be construed as legal, financial or tax advice. Each individual should contact his or her own legal advisor, independent financial advisor, or tax advisor for legal, financial, or tax advice.
Introductions are permitted exclusively through registered exempt market dealers. OZ Capital MIC has appointed Belco Private Capital Inc. (”Belco”), as its exempt market dealer.
If you are an individual interested in investing in the OZ Capital MIC, please contact Denis Rudenko, registered dealing representative with Belco, at denis@belcopc.com.
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