RESPs? Tell me what it means to me

[Slava]

Originally Posted by bizaro86

If you're already maxing out RRSP/TFSA room contributing more than the grant is better than non-registered money from a tax point of view.

The taxes are deferred for quite awhile (like an rrsp). The big caveat is the money belongs to your kids. They has advantages (anyone doing this is probably in a higher tax bracket than their early 20s kids) with thr potential disadvantage that they get to spend it not you if you needed it.

That's only partly true though. It's basically a trust where the parents have the account and it comes out in the kids names for tax purposes when it's taken for the education withdrawals. There are mechanisms where it could be transferred to an RRSP for the subscriber if the kids don't go to school, but you would lose the CESG in that event.

But to be clear...the kids don't own those funds until the parents pay them out.

[Izzle]

RESPs are so legit. If I had the money, I would have done a first year contribution of ~16k and then 2500 every year till my child is 18. But I didn't. Now I max out 2500 every year ($48.08 weekly). Park it in veqt till child is 8 or 9 and then derisk till 18. Hopefully it'll be a nice sum when she's ready to use it.

[edslunch]

We maxed out RESPs for our two kids and it’s great peace of mind knowing that their undergrad is pretty much covered no matter what. Never crunched the numbers to consider alternatives, I just treat it as a separate compartment and leave it alone. With an 18 year horizon we didn’t need to be very conservative with investments and they did alright.

One note: you are limited to paying out $5000 total for the first 13 weeks of school, after that it’s whatever you want provided they are in a mostly full time program. This can be a cash flow consideration. My son had to withdraw after first year for medical reasons, then when he went back he was limited to $5000 again (like starting over).

[Fuzz]

While these RESP's sound great for those who can afford them, I do wonder if it is great for society in general. Good on you for giving your kids a huge advantage, but it also means some kids don't get it at all and have a much steeper hill if they want an education. I wonder if the program should attempt to be more beneficial to low income earners who also want their kids to go to school, but can't afford the program? Unless there is a part of it that already handles that?

[Slava]

Originally Posted by Fuzz

While these RESP's sound great for those who can afford them, I do wonder if it is great for society in general. Good on you for giving your kids a huge advantage, but it also means some kids don't get it at all and have a much steeper hill if they want an education. I wonder if the program should attempt to be more beneficial to low income earners who also want their kids to go to school, but can't afford the program? Unless there is a part of it that already handles that?

There are bonds available within the RESP for low income people as well, and while that’s not going to entirely even things out, it’s not nothing.

[MoneyGuy]

RESPs are excellent. When I was an advisor I had a couple of clients who used them to fund their grandkids’ education using RESPs and now my wife and I are doing the same thing.

[Regorium]

Someone said somewhere that investing 50k into the RESP on year 1 outperforms the 20% match.

Thoughts?

[Slava]

Originally Posted by Regorium

Someone said somewhere that investing 50k into the RESP on year 1 outperforms the 20% match.

Thoughts?

Theoretically that is right (depends on what growth rate you use of course), but it’s not really feasible for most new parents to just deposit $50k right off the bat.

[RichieRich]

Originally Posted by Regorium

Someone said somewhere that investing 50k into the RESP on year 1 outperforms the 20% match.

Thoughts?

It’s not an all or nothing situation in real life. In real life take your guaranteed 20% annual AND do non registered and transfer into RESP annually.

[GGG]

Originally Posted by Regorium

Someone said somewhere that investing 50k into the RESP on year 1 outperforms the 20% match.

Thoughts?

Is this persons TFSA and RRSP maxed at this point? If the answer is no then a person is better filling up their TFSA with the 50k and then selling to fund the $2500 Over the years. In this case all growth is tax deferred and you get grant money.

But let’s say you tfsa is maxed you have 50k invested a 7% ROR and a 48% marginal rate

Option 1) 50500 invested for 18 years at 7% you get 157k
Option 2) 17500 invested upfront, 2500 per year remaining 32500 invested with 2500 after tax being sold each year to fund RESP

This gives you 131k in your RESP and if I did the tax part of the capita gains correctly about 27k after you sell your investment leaving you with the exact same amount except that the money invested in the RESP is still taxable to your child and if removed in 4-6 years you would be above the basic exemption amounts so your child would incur a small amount of taxes.

So I don’t see it making sense to invest 50k upfront even in the top tax bracket. Closer than I thought it would be.

[Roughneck]

Originally Posted by Regorium

Someone said somewhere that investing 50k into the RESP on year 1 outperforms the 20% match.

Thoughts?

Came to the same thing as GGG with a "real" example.



If 18 years ago you put all $50K into SPY (S&P 500 ETF) vs. putting in $16,500 in, then $2500 a year until you reach the CESG max (15th year would have $1000 bringing you to the $50K max), you would basically come out almost identical. A couple grand ahead with the bulk buy-in.



I'm not sure locking away the $50K all at once would be worth it since you're giving up flexibility, but I am not a financial advisor.

[Lil Pedro]

Got both of our kids on separate RESPs, with a $210 automatic deposit each month....we use their CCB exclusively for this. Government tosses in an additional $42/month.

It's crazy how quickly this adds up; start as soon as you can.

[tvp2003]

Geez, I can’t imagine having $55k or more set aside for each kid when they turn 18. I grew up getting bursaries and student loans; I wonder if I would have done things any differently with that kind of nest egg to work with (tuition was obviously cheaper back then; I’m afraid to look at how much it is now, especially a professional degree like law or medicine)…

[Izzle]

Originally Posted by Lil Pedro

Got both of our kids on separate RESPs, with a $210 automatic deposit each month....we use their CCB exclusively for this. Government tosses in an additional $42/month.

It's crazy how quickly this adds up; start as soon as you can.

You're the only other person that I've seen that has separate RESPs for their children. Seems like most folks have a family RESP. I understand that some kids might not want to go to university. However, even if they wanted to go to trade school, RESPs can still be used for it. I think the chance that my child won't use the RESP is very slim.

[Enoch Root]

A family RESP is much more flexible - costs are likely to be unequal between children and if so, funds can be allocated accordingly.

It can also help to minimize costs.

[Izzle]

I think the main reason for us going with separate RESPs is that we plan on having 5 years or so of a gap between kids. Allocations would be different given the respective kids ages. With a family RESPs, my understanding is that it is split evenly between the kids. Also it is cleaner when time comes to withdraw from the RESP, you don't need to keep track of the EAP between the kids. Whatever is in RESP 1 is for kid 1.

[Slava]

Originally Posted by Izzle

I think the main reason for us going with separate RESPs is that we plan on having 5 years or so of a gap between kids. Allocations would be different given the respective kids ages. With a family RESPs, my understanding is that it is split evenly between the kids. Also it is cleaner when time comes to withdraw from the RESP, you don't need to keep track of the EAP between the kids. Whatever is in RESP 1 is for kid 1.

Well the reality is there’s no real drawback to the family plan. You get the increased flexibility, but there’s no reason to have separate accounts. The only pseudo-benefit is to help people engage in mental accounting (because they can treat the kids fairly), but the reality is that’s not always productive. If one child wants to go to SAIT and get a ticket in the trades, while the other wants to be a doctor, the education costs are very different. It’s up to the parents as to whether they want to fund all of that, but with the family RESP you have an option. With two separate accounts, you lose that flex.

That’s just my opinion in having done this for many children (through my clients) for years.

[Izzle]

Originally Posted by Slava

Well the reality is there’s no real drawback to the family plan. You get the increased flexibility, but there’s no reason to have separate accounts. The only pseudo-benefit is to help people engage in mental accounting (because they can treat the kids fairly), but the reality is that’s not always productive. If one child wants to go to SAIT and get a ticket in the trades, while the other wants to be a doctor, the education costs are very different. It’s up to the parents as to whether they want to fund all of that, but with the family RESP you have an option. With two separate accounts, you lose that flex.



That’s just my opinion in having done this for many children (through my clients) for years.

According to this website:
https://www.canada.ca/en/revenue-age...ther-resp.html

As long as the receiving RESP has a beneficiary under 21 years of age, the transfer can be made. So any leftover amounts in RESP-trades can be transferred to RESP-doctor without tax implication. So individual plans don't necessarily lose the flex. Perhaps I'm misinterpreting it?

[Enoch Root]

Originally Posted by Izzle

I think the main reason for us going with separate RESPs is that we plan on having 5 years or so of a gap between kids. Allocations would be different given the respective kids ages. With a family RESPs, my understanding is that it is split evenly between the kids. Also it is cleaner when time comes to withdraw from the RESP, you don't need to keep track of the EAP between the kids. Whatever is in RESP 1 is for kid 1.

No, you can allocate as desired

[Slava]

Originally Posted by Izzle

According to this website:
https://www.canada.ca/en/revenue-age...ther-resp.html

As long as the receiving RESP has a beneficiary under 21 years of age, the transfer can be made. So any leftover amounts in RESP-trades can be transferred to RESP-doctor without tax implication. So individual plans don't necessarily lose the flex. Perhaps I'm misinterpreting it?

Yeah there is some flexibility, as long as the kids are young enough. It would suck to have kids over 21 and need to complete this though, and with kids in grad school or things of that nature it could definitely arise. Like I say...I just don't see the advantages of the individual plans overall? In some cases it's necessary (martial breakdown, and that sort of thing), but overall it seems easier to just keep them together and allocate them as needed when the time comes for the educational payments.

Originally Posted by Enoch Root

No, you can allocate as desired

Yeah, I missed that also, but you can definitely split the allocations as you see fit, or when one grant is maximized and another person in the plan is still eligible or that sort of thing.