Save more money for your children's education with less of your own money and more of the governments!
Double dipping chips and salsa is one big faux pas according to the wisdom that is Seinfeld, but double dipping on your RESP’s should be encouraged and could mean more cash in your pocket.
If you have more than one child and have an RESP account for them, then you may be eligible to double dip. The term ‘double dip’ in this case, just means using existing money inside your RESP, taking it out, and then putting it back in. By doing this, you could be eligible to receive the grant money twice on the same initial deposit.
To perform this properly, once an older child starts post-secondary education, then they can start withdrawing money from the RESP account. Once withdrawn, you can then reinvest it all, or a portion of it, back into the RESP assuming the younger sibling is still eligible for the federal grant money.
Dollars and cents example would be investing $5000 for the older child in an RESP to receive $1000 (20%) of federal grant money. Once that child is in post-secondary school, withdraw the $5000, reinvest it back into the RESP and receive another $1000 grant for the younger child. That's 40% of grants received from the same $5000 initially deposited! We assume that both children are eligible to receive grant money at time of deposits in this example.
This strategy works especially well if there is a large gap between your children in age. If for example, you have two children several years apart in age it would be wise to open up a family RESP and allocate up to 100% of the grants to the older child even though this money is to be shared by the two children. By doing this it ensures the younger child has substantial amounts of Canada Educations Savings Grant room by the time the older one starts post-secondary schooling. If the older child starts school at age 18, you could withdraw how much money you would need for schooling costs plus up to an additional $5000, reinvest the $5000 back into the RESP and allocate it to the younger sibling which would earn an additional grant of $1000. You could potentially earn $1000's of additional grant money if this strategy is used for several years, but would depend on various things such as how much money is in the RESP at the time the oldest is drawing on it, how much you want to provide your children for their schooling, and how much grant room is available for the youngest. As mentioned before these $1000's of additional grant money can be earned without actually having to contribute any new money into the RESP!
Extra cash from double dipping RESP money should be something for everyone saving money for their children to consider. Keep the chips to one dip, but time to start double dipping with your RESP’s. Talk to your financial advisor to see if this strategy might work for you. Happy Saving!
-Marty Metz, CFP®
CERTIFIED FINANCIAL PLANNER
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