Education Savings Optimization: RESP (Canada) & 529 (U.S.)

Canada: RESP Grant Maximization Rules

The Canada Education Savings Grant (CESG) provides a 20% match on the first $2,500 contributed annually per child ($500 free grant per year), up to a lifetime ceiling of $7,200.

• Optimal Contribution Pace: Contribute $2,500 annually from birth to age 14, plus $1,000 at age 15 to capture the full $7,200 grant.
• The Front-Loading Strategy: The lifetime RESP contribution cap is $50,000. Contributing $14,000 at birth and then $2,500/year for 14.4 years mathematically beats slow pacing due to 18 years of tax-sheltered compounding.

U.S.: 529 Plan & SECURE 2.0 Rollover

Under SECURE 2.0, up to $35,000 in unused 529 education funds can be rolled over tax-free into a Roth IRA for the beneficiary, eliminating the risk of "overfunding" a college account.

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Withdrawal Tax Strategy: EAP vs. PSE

When the student enters university/college, RESP withdrawals consist of two distinct buckets:

1. Post-Secondary Education (PSE): Return of your original capital. 100% tax-free.
2. Educational Assistance Payments (EAP): Accumulated growth and CESG grants. Taxed in the student’s hands.

Rule: Empty all EAP grants in the student's first 1-2 years while their earned income is near zero (covered entirely by the basic personal tax exemption). Never let EAP balance remain at graduation.

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Beneficiary Restrictions

Ensure the RESP plan is set up as a Family Plan rather than Individual Plan if you have multiple children, allowing grant and asset sharing if one child pursues vocational school or an alternative path.