Saving for your Kids' Education

[Slava]

On the idea of not depleting the RRSP and paying the loan after, a couple considerations. First, an RESP withdrawal will require proof of enrolment to get the grants. You can’t take the grants without that, so you’ll definitely want to at least take those portions through the schooling period. For clients, we generally take all of the grants we can, as early as we can, so that if the student doesn’t finish then we have the government portion out.

The other consideration here is that funds that come out during school are in the name of the student. It’s taxable to them, and of course they have all kinds of things they can write off as a result of being in school. So, it makes sense. If you’re plan is to one day withdraw all the funds and pay the loan, just bear in mind these potential tax consequences before you embark on that.

[bizaro86]

Originally Posted by Slava

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

Really? Do you just start a new "family" RESP and transfer all the individual ones into it?

[topfiverecords]

Resp ect

[Paulie Walnuts]

Originally Posted by bizaro86

Really? Do you just start a new "family" RESP and transfer all the individual ones into it?

Depending on who are with its usually fairly easy. You can you can open a family plan and do a transfer in kind to that account.

Only bank I've seen not utilize the family is TD and it's stupid.

[Buff]

Originally Posted by DoubleF

Primerica?

I know there were a handful of MLM that do RESP and RRSP and they're sketchy AF.

Checked with Mrs. Buff. It was Heritage Fund. Not a scam but there were so many check boxes to tick off when it came time to get the money that a lot of people couldn't get their money and felt like it was a scam.

[GGG]

Originally Posted by fundmark19

Liberals made all federal student loans interest free last month.

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

I don’t know if it’s changed recently but it used to be of your parents income was too high you wouldn’t qualify for federal or provincial student loans. So if pursuing this strategy you probably want to make sure your kids will qualify.

[Suave]

Originally Posted by Paulie Walnuts

Depending on who are with its usually fairly easy. You can you can open a family plan and do a transfer in kind to that account.

Only bank I've seen not utilize the family is TD and it's stupid.

I'm with TD and my kids are in a joint RESP.

[puckedoff]

Originally Posted by Suave

I'm with TD and my kids are in a joint RESP.

Same, opened for one kid initially and then added the other later on.

[Slava]

I thought it would be really weird if TD was an outlier there.

[Fuzzy14]

One of the greatest gifts my parents gave me was putting a bit of money aside for my undergrad. By the time I finished undergrad and law school, I managed to only accumulate 35k in student loans, which I paid off in relatively short order. The deal was always "we cover your tuition for 1 degree and you can eat and sleep here for free. If you go away for school or decide to move out, you're on your own".

I get this whole "school of hard knocks" approach some have, but with cost living being what it is today, you are probably doing your kids a significant disservice. I know that in my case, I am significantly ahead of my friends and colleagues who had to foot the bill on their own.

[albertGQ]

I have my RESPs with Slava. Cheap plug, but I definitely recommend him

We started with $200/M when we had our first boy in 2008. He told us to open up a family plan, which we did. We kept it at the same $200/M after we had our 2nd, 3rd and even 4th boy.

It wasn't until recently we were able to increase it to $400/M. That seems low ($100/M per kid), but my oldest is now 14. After he goes to school and takes a chunk out, we will continue to do $400/M to catch up a bit for the other 3 younger ones

[Slava]

Originally Posted by albertGQ

I have my RESPs with Slava. Cheap plug, but I definitely recommend him

We started with $200/M when we had our first boy in 2008. He told us to open up a family plan, which we did. We kept it at the same $200/M after we had our 2nd, 3rd and even 4th boy.

It wasn't until recently we were able to increase it to $400/M. That seems low ($100/M per kid), but my oldest is now 14. After he goes to school and takes a chunk out, we will continue to do $400/M to catch up a bit for the other 3 younger ones

Thanks for the plug! Cheap or otherwise, they're all good!

[Calgary Highlander]

Originally Posted by Doctorfever

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!

Wow, I did not know this. We have two children in a family RESP, to which we contribute the maximum amount each year ($2500 yr). Once both of our children are in school, my wife intends to go back to school for a graduate degree. Would she also be eligible to use those funds?

[IamNotKenKing]

Originally Posted by 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.

Pardon my ignorance, but how do you get 20% grant money by contributing to an RRSP? Or are you suggesting withdrawing an RESP, returning the 20% grant money, and then investing it in an RRSP?

[The Fisher Account]

Good conversation in this thread.

Guess I should call Wealthsimple and merge my kids' RESP's here..

[GGG]

Originally Posted by IamNotKenKing

Pardon my ignorance, but how do you get 20% grant money by contributing to an RRSP? Or are you suggesting withdrawing an RESP, returning the 20% grant money, and then investing it in an RRSP?

Yes, the post was what to do if you have money left in the RESP if your kids aren’t going to school.

If you transfer the money from an RESP to an RRSP you have to repay the government grant but over the 20 years you had the RESP all of the earnings on the government grant money are yours to keep.

If you just withdraw the money there is a 20% tax penalty on your earnings which roughly offsets the money your earned on the grant.

[IamNotKenKing]

Originally Posted by GGG

Yes, the post was what to do if you have money left in the RESP if your kids aren’t going to school.

If you transfer the money from an RESP to an RRSP you have to repay the government grant but over the 20 years you had the RESP all of the earnings on the government grant money are yours to keep.

If you just withdraw the money there is a 20% tax penalty on your earnings which roughly offsets the money your earned on the grant.

Gotcha. Did not follow that it was what to do if the funds were not used for education.

[V]

When our first kid was born we set her up with an RESP through one of those group companies, Canadian Scholarship Trust. I’ve heard a lot of stories about them and their like. Good news is we’ve had no issues withdrawing money as she goes to school. I think if you play according to the rules and don’t require any flexibility, it’s fine. But yeah, I was definitely worried about being able to withdraw funds after all the stories I had heard.

[Strange Brew]

If nothing else, open a brokerage account in your kids names when they are young and put in money every month and invest it. No tax advantage other than capital gains, but you maintain maximum flexibility.

[Slava]

Originally Posted by Strange Brew

If nothing else, open a brokerage account in your kids names when they are young and put in money every month and invest it. No tax advantage other than capital gains, but you maintain maximum flexibility.

Sure and you also don’t get the government grants.