What are you doing to save for kids education - RESP, anything else?

[yyjvisitor]

Originally Posted by Slava

Well you could invest the $27,500 and then move it in gradually to get all the grants over the coming years. That would give you the same compounded return, but more grant money.

If you invested $27,500 in a non registered account and then move $2500 each year to maximize the grant money, what tax event would you trigger? My understanding is the tax free gains in a RESP thru the life of the plan and if it was in a non registered account there will be capitals gains with the transfer and the compounding return

[1stLand]

If I have kids, they are paying their own way through school.
Although I will help them save.

My parents saved all of my birthday and Christmas money I received from relatives every year up to the age of 18.

By the time University came around I had 1 semester paid off.

I also won scholarships through hockey and getting good marks and doing extra curricular involvement. This helped me pay for a small portion of my tuition but the balance was paid off by working summer jobs.

I graduated with 2 degrees and didn't take out any student loans.

But rest assured, I worked my arse off for 4 months each year during the semester break.

Taught me a lot about the value of money, and now I am better off for it.

I also know a lot of kids that got their schooling paid for and never graduated and ended up doing something completely different.

[bizaro86]

Originally Posted by kl83

There is an MER of 3.5% as part of the investment fund but no admin fees otherwise. The document was just a general overview brochure. More details available if required.

Looks like my prediction about the size of the fees based on the feel of the document was 100% correct.

Example with numbers: My kid was born this year, if I put in $100 they "give" me a 15% educational bonus. The money will be in there for an average of 20 years (assumes university from 18-22). So on the $115, they are charging $115*0.035*20 = $80.50 in fees over 20 years. Once you offset the $15 bonus you're still paying $65.50 in fees on a $100 investment.

This excludes the government grant, because you get that no matter where you do an RESP.

[kl83]

Originally Posted by bizaro86

Looks like my prediction about the size of the fees based on the feel of the document was 100% correct.

Example with numbers: My kid was born this year, if I put in $100 they "give" me a 15% educational bonus. The money will be in there for an average of 20 years (assumes university from 18-22). So on the $115, they are charging $115*0.035*20 = $80.50 in fees over 20 years. Once you offset the $15 bonus you're still paying $65.50 in fees on a $100 investment.

This excludes the government grant, because you get that no matter where you do an RESP.

Not quite how this works. The way this investment works is that you need to contribute a definite amount each year until age 17 to qualify for the bonus.

If you contribute $100 per year, MER would be $3.50 and they would provide you a $15 bonus. And this would be the same each and every year.

This would not be a good plan for someone that isn't committed to doing this until age 17. If your planning to stop or do sporadic contributions, this would be horrible.

[Slava]

Originally Posted by yyjvisitor

If you invested $27,500 in a non registered account and then move $2500 each year to maximize the grant money, what tax event would you trigger? My understanding is the tax free gains in a RESP thru the life of the plan and if it was in a non registered account there will be capitals gains with the transfer and the compounding return

Well that could be a factor as well. You would have to sit down and go through the math, but otherwise you could have capital gains tax to pay. I doubt that this cost outweighs a $500 guaranteed grant though? Some of the $2500 would be capital gains say in year two but not all of it. It would also depend on what you are invested in while you wait to make the contributions, but you could be paying a minimal capital gains tax to get the $500 grant.

Alternatively you could pull funds from the TFSA (assuming you have one) and pay no tax to make the contributions. There is a lot to consider really.

[squiggs96]

Originally Posted by Johnny199r

I graduated with two degrees in 2008 with no debt. I was frugal as hell and worked hard. I won't pay for my kid's tuition. I might consider it if tuition was expensive as U.S schools, but it's not. I see no reason to pay for a kid's school. They can earn it.

I graduated university in 2004 with no debt. I worked as a server/bartender throughout, took an extra job in the summer and received scholarships. I don't want kids, and thus won't have to pay for them.

That said, are you kidding me? Look at the difference a person can make when they have a university degree, versus one that doesn't. It's a huge number. It's not like tuition is a car or a trip to Europe. Those you should definitely make the kid work hard for, but it's okay to help out too. If your kid is making choices on whether to go to school or not based on the cost of tuition, they might bypass the education. The longer you are out of school, the harder it is to go back. They might get a full time job to pay for tuition, but then have no time to study. Hopefully you like your kids, because they might be staying with you for the long haul, or boring off you in the future.

As a parent paying for tuition, you would then be eligible to claim their tuition credits on your income tax return. My parents wish they could have helped me out with my tuition, but they didn't have any money. My brother has two young kids, and makes far less than I do. I've already told him that I will pay for both to go to university. I have it set up in my will that if I die, their tuition is covered with a trust. I couldn't imagine telling my child that if he wants to go to school he has to cover it himself or he can't go. I'd rather they were worried about their midterms, than about paying rent or loans.

Dad, can I have some money for tuition?
Go fack yourself and get a job.
I'm trying to, but I don't have the education to get one.
Too bad. Earn it.

[bizaro86]

Originally Posted by kl83

Not quite how this works. The way this investment works is that you need to contribute a definite amount each year until age 17 to qualify for the bonus.

If you contribute $100 per year, MER would be $3.50 and they would provide you a $15 bonus. And this would be the same each and every year.

This would not be a good plan for someone that isn't committed to doing this until age 17. If your planning to stop or do sporadic contributions, this would be horrible.

I think it's pretty likely that you have to pay the $3.50 every year. So the example I gave was for the first year's contribution, where you put in $100, pay a cumulative $70 in fees and get $15 back.

The next year, you put another $100 in, get another $15, and pay $3.50 per year for 19 years, or another $66.50 in fees.

So the deal gets better every year, but its not very good overall.

I'm not trying to convince you, since you have an incentive to not be convinced, but I think the vast majority of people are better off with something with lower fees.

[Enoch Root]

Originally Posted by kl83

We are planning to put $2500 a year (208.33/month) into this plan. Am little biased since I sell the product. Main advantage is education bonus of up to 15% of the contributions to the RESP will increase the income paid as Educational Assistance Payments (EAPs) to go along with any the fund and any growth plus the grants.

http://www.inalco.com/pdf/particuliers/13-441A.pdf

I am always leery of structured plans like this - they are designed to make more money for the manager, not for the investor.

One thing that struck me immediately when flipping through it was that 85% of the portfolio would be invested in money market and fixed income funds in the secondary plan. No one knows what interest rates will be in the future of course, but based on current rates - and assuming the 3.5% MERs that were mentioned in another post - that would mean that 85% of the portfolio would not be expected to cover the MER. In other words, a negative net return.

I would be curious to know more about the 'bonus', but for me, a sound investment plan will always be better than any structured investment like this. The headwinds from higher fees are simply too strong.

[SeeGeeWhy]

Originally Posted by kl83

There is an MER of 3.5% as part of the investment fund but no admin fees otherwise. The document was just a general overview brochure. More details available if required.

Does that come with a complimentary bottle of anal lube?