Saving for your Kids' Education

[Maritime Q-Scout]

What's the best way to invest for your kids' education.

RESP? TSFA? Something I'm unaware of?

I figured the CP brain trust would be a reasonable source of information.

[Izzle]

Deffo RESP. The govt matches 20% of what you put in every year to a max contribution of $500. So you put in $2500, govt puts in $500.

Govt contribution is maxed lifetime at $7,600.

Lifetime max contribution you can make is $50,000. If you have all $50k available now, you could put it into a TFSA (if you have the space) and draw from it to add to the Resp on a yearly basis. You have more options if you gave 50k right now.

If you plan on having more kids then you could open a family RESP. But whatever you do, do not join a group RESP.

[photon]

We did an RESP for my son, worked out well, we're just withdrawing from it now for him for school.

I've never even heard of group RESPs, seems like something that could work but would have zero flexibility and a whole bunch of rules, but would be interested as to the why of "whatever you do, do not join a group RESP", sounds like a story

We didn't save enough to cover it all so he ended up getting a student loan too because, hey, free money (well interest free loan if we pay it off after he's done) so why not.

Low income families can also get up to $2000 from the govt from the Canada Learning Bond in an RESP with no personal contributions ($500 the first year, and $100 per year up to age 15 for each year they qualify).

I've heard some people say negative things about RESPs in that they aren't flexible and they think it's better to pay down debt and save in RRSPs and TFSAs for better rates of return and more flexibility (if your kid don't use them for traditional post-secondary). If you don't use RESPs for education you lose the part Canada contributes (which is understandable).

But we just used RESPs.

[malcolmk14]

Started an RESP when my daughter was born last April and contributed the $2500 to it in each of 2021 and 2022. Should be $60k or so sitting in there when she's 18 at modest interest rates. We'll do the same if we have another kiddo.

[Izzle]

Originally Posted by photon

We did an RESP for my son, worked out well, we're just withdrawing from it now for him for school.

I've never even heard of group RESPs, seems like something that could work but would have zero flexibility and a whole bunch of rules, but would be interested as to the why of "whatever you do, do not join a group RESP", sounds like a story

We didn't save enough to cover it all so he ended up getting a student loan too because, hey, free money (well interest free loan if we pay it off after he's done) so why not.

Low income families can also get up to $2000 from the govt from the Canada Learning Bond in an RESP with no personal contributions ($500 the first year, and $100 per year up to age 15 for each year they qualify).

I've heard some people say negative things about RESPs in that they aren't flexible and they think it's better to pay down debt and save in RRSPs and TFSAs for better rates of return and more flexibility (if your kid don't use them for traditional post-secondary). If you don't use RESPs for education you lose the part Canada contributes (which is understandable).

But we just used RESPs.

Re group RESP. Nothing that happened to me personally, I was always in individual resps. Google group RESP and the stories are horrifying.

Extremely rigid, high fees, need to stay in for entirely without withdrawal. Sounds like a tontine scheme where if you withdraw early you don't get back much and whatever growth was there is distributed to members that remained in the plan.

[GGG]

One thing to consider is what happens if it’s not used.

If you withdraw an RESP you get taxed on the earnings and your marginal rate plus 20% and you have to pay the grant money back. This roughly leaves you in the same position as if you had invested in a non-tax advantaged account as the 20% extra is equivalent to the amount of income you earned on the grant money.

Now the other option is to put that money in an RRSP. You still have to repay the grant money but you don’t have to pay the 20% penalty so you got free earnings on the governments grant money. So it’s like investing $1000 and getting returns on $1200. But if you have tax advantaged space that you weren’t using and investing in an resp instead and you have a marginal rate is above 35% then investing in the TFSA works out better.

In general a RESP will work out better or close to similar in most scenarios.

[Slava]

Originally Posted by Izzle

Re group RESP. Nothing that happened to me personally, I was always in individual resps. Google group RESP and the stories are horrifying.

Extremely rigid, high fees, need to stay in for entirely without withdrawal. Sounds like a tontine scheme where if you withdraw early you don't get back much and whatever growth was there is distributed to members that remained in the plan.

Those are the scholarship plans and yeah, I’d avoid those entirely.

[Doctorfever]

Family RESP for us. With 3 kids it gives us options to move the money between them, if one decides not to utilize post secondary education (unlikely, but possible). We started it out pretty strong when kids were born, and now only contribute about $4000 per year, but it should add up to something

[Locke]

Have you ever considered having your child become a naturalized Citizen of Lichtenstein?

[Maritime Q-Scout]

Family RESPs basically having one RESP for all kids? I'd imagine interest would compound greater than separate ones? A little more flexibility if one decides not to go post-secondary or gets a scholarship?

Further, where can I get info on my kids becoming citizens of Lichtenstein?

[GordonBlue]

Originally Posted by Maritime Q-Scout

What's the best way to invest for your kids' education.

RESP? TSFA? Something I'm unaware of?

I figured the CP brain trust would be a reasonable source of information.

I did an RESP. I am only able to put in about $125 a month, but even doing that, my kid has a solid pile of money already and she's not even 10 yet.

[Doctorfever]

Originally Posted by Maritime Q-Scout

Family RESPs basically having one RESP for all kids? I'd imagine interest would compound greater than separate ones? A little more flexibility if one decides not to go post-secondary or gets a scholarship?

Further, where can I get info on my kids becoming citizens of Lichtenstein?

Yes, the family option was for all kids, and I believe it can be used by a parent as well. The flexibility was why we chose that.

Good luck!

[GreenLantern]

We did the RESP, I think the family one so we have the flexibility depending what each kid wants to do. My wife's parents did this for her and it worked great so I was sold.

We started out as modest as a lump sum and 50 bucks a month, then bumped it up as our income went up. We currently do a few thousand per kid a year now.

Don't feel like any amount is to little, just get the ball rolling and you can always adjust.

I will also say, when I was young my Mom passed and in her will there was a stipulation that the inheritance had to be used for educational purposes only. I think it unlocked at like age 35 or something otherwise.. I believe this just falls on the executor to enforce, I'm not sure because I never questioned it, I just used that as motivation to make it to University, which I did and went on to complete multiple degrees.

Starting a RESP for your kids is not only great to save and get 'free' money out of the Govmunt, but it also could have a very powerful effect on their motivation. Post secondary doesn't just mean University, it could be anything, that was just the path I chose.

[DoubleF]

We wanted family RESP, the advisor screwed it up. So now we have individual RESP for the kids. We put in the amount required for max matching and invest in something safe and brain dead like bank stocks.

We anticipate there should be enough for a bachelors and possibly a masters degree anywhere in Canada. If they want to go elsewhere, that's fine. But we aren't paying for them to go to MIT, Oxford or anything crazy like that out of pocket. It better be funded heavily with scholarships otherwise, it likely isn't worth it.

IMO, what I've been telling kids who don't know what they want to do out of high school is this:
1. Get a business degree, or
2. Get a journeyman's ticket

If you figure out what you want to do during or afterwards, fantastic and go for it. But IMO, all the basic courses and skills you'll get anywhere at the beginning or end of a business degree or journeyman's ticket will never be wasted and will likely enhance whatever else they end up doing instead. It's the best two choices IMO if you need a brain dead rat race path to follow.

Worst case, you finish your degree or get your ticket, it's still a path where you can make good money and still have options for a career change in your 30s. This is IMO a potentially better floor than wasting tons of money on a degree that you don't really use.

Journeyman's ticket can aid in skills and relationships where you can always DIY at home to save money/help others while also making decent money. Add an MBA and it's a great basis for a self employed individual in the construction industry.

Business degree opens the door to a lot of white collar jobs. The business degree could help navigate the business world if they find a different career they want to do (ie: Programming, inventing/manufacturing, music etc.). It also is a degree that can be easily added upon for additional majors or further education (ie: Law, engineering, science etc.).

[Slava]

Originally Posted by DoubleF

We wanted family RESP, the advisor screwed it up. So now we have individual RESP for the kids. We put in the amount required for max matching and invest in something safe and brain dead like bank stocks.

We anticipate there should be enough for a bachelors and possibly a masters degree anywhere in Canada. If they want to go elsewhere, that's fine. But we aren't paying for them to go to MIT, Oxford or anything crazy like that out of pocket. It better be funded heavily with scholarships otherwise, it likely isn't worth it.

IMO, what I've been telling kids who don't know what they want to do out of high school is this:
1. Get a business degree, or
2. Get a journeyman's ticket

If you figure out what you want to do during or afterwards, fantastic and go for it. But IMO, all the basic courses and skills you'll get anywhere at the beginning or end of a business degree or journeyman's ticket will never be wasted and will likely enhance whatever else they end up doing instead. It's the best two choices IMO if you need a brain dead rat race path to follow.

Worst case, you finish your degree or get your ticket, it's still a path where you can make good money and still have options for a career change in your 30s. This is IMO a potentially better floor than wasting tons of money on a degree that you don't really use.

Journeyman's ticket can aid in skills and relationships where you can always DIY at home to save money/help others while also making decent money. Add an MBA and it's a great basis for a self employed individual in the construction industry.

Business degree opens the door to a lot of white collar jobs. The business degree could help navigate the business world if they find a different career they want to do (ie: Programming, inventing/manufacturing, music etc.). It also is a degree that can be easily added upon for additional majors or further education (ie: Law, engineering, science etc.).

You can still merge those into a family RESP, in case you wanted to.

[fundmark19]

Student loans are interest free. Kids can fend for themselves

[DoubleF]

Originally Posted by Slava

You can still merge those into a family RESP, in case you wanted to.

I know. But we went in a total of 4 times for RESP set up/issues. 3 were screw ups, the 4th time we couldn't do the family RESP because apparently they wanted all sorts of additional documentation all over again to do it from scratch that we did not have on hand at that meeting and it was not on the list of documents they asked us to bring.

I'm not giving them a chance to mess up the government matching and whatever stuff which they actually almost did until the more senior advisor on the 4th visit sorted it out to a passable scenario of siloed RESP.

The first advisor actually said we didn't want or need a family RESP which is how the issues started in the first place. Then I or my wife could not contribute to the RESP because we were not connected to them or authorized on them. Then the senior advisor actually spent half an hour to 45 mins trying to talk us out of the family RESP. It was odd.

[Fighting Banana Slug]

Originally Posted by fundmark19

Student loans are interest free. Kids can fend for themselves

Wat?

[fundmark19]

Originally Posted by Fighting Banana Slug

Wat?

Liberals made all federal student loans interest free last month.

https://nationalpost.com/news/politi...-loan-interest

[Torture]

Originally Posted by DoubleF

I know. But we went in a total of 4 times for RESP set up/issues. 3 were screw ups, the 4th time we couldn't do the family RESP because apparently they wanted all sorts of additional documentation all over again to do it from scratch that we did not have on hand at that meeting and it was not on the list of documents they asked us to bring.

I'm not giving them a chance to mess up the government matching and whatever stuff which they actually almost did until the more senior advisor on the 4th visit sorted it out to a passable scenario of siloed RESP.

The first advisor actually said we didn't want or need a family RESP which is how the issues started in the first place. Then I or my wife could not contribute to the RESP because we were not connected to them or authorized on them. Then the senior advisor actually spent half an hour to 45 mins trying to talk us out of the family RESP. It was odd.

You can set it up yourself on Wealthsimple in about 2 minutes and they handle all of the grants. Dead simple.

Student loans may be interest free now, but the ability to not have to worry about money (as much) when pursuing your education and not starting your young adult life in a pile of debt is such a leg up if you have the means.