RESP Contribution Question

[jj2]

I'm trying to sort out contribution amounts to maximize grants, but have a bit of complication (for me at least).

We have been part of a pooled plan for our two kids for 14 years (big mistake in retrospect, but now not worth it to bail on it).

Projecting out total contributions / grant eligiblity, we're going to have some room to get more grant money, so i'm planning on opening self-directed RESPs at my bank (TD).

I've got total contributions and grants received to date from the government and confirm we've got room in each.
Here's the details:

Child 1 (15yrs)

$11 k worth of contribution room for child 1, with 2.5 yrs until 17
With the current pooled plan, we contribute ~ $1600 /yr and receive ~$325 in grants / yr

$16 k worth of contribution room for child 2, with 4.5 yrs until 17
With the current pooled plan, we contribute ~ $1175 /yr and receive ~$235 in grants / yr

I want to know the maximum amount i can contribute in 2018 to get maximum grant $

Is it just $2500 / yr / child or do i need to subtract the amounts contributed in each for each child? 

Thanks

[ToTheMoon]

I believe you can play catch-up for only one year at a time. 

So for child 1 you can contribute ($2500-1600) + $2500 (one year catch up)= $3400/year.

Child 2 would be ($2500-1175) +$2500 (one year catch up)= $3825

*Please verify this before taking any action as I may have imbibed this evening and should be heading to bed rather than posting on the forums!  Goodnight :)

[jj2]

I believe you can play catch-up for only one year at a time. 

So for child 1 you can contribute ($2500-1600) + $2500 (one year catch up)= $3400/year.

Child 2 would be ($2500-1175) +$2500 (one year catch up)= $3825

*Please verify this before taking any action as I may have imbibed this evening and should be heading to bed rather than posting on the forums!  Goodnight :)

Thanks.  This is my best guess too.  Can anyone confirm?

[ToTheMoon]

http://www.moneysmartsblog.com/resp-contributions

According to this, you can play catch up at any time,  but each year you can only get grant money for the current year plus one catch up year.

Here it is from the horses mouth:
https://www.canada.ca/en/employment-social-development/services/student-financial-aid/education-savings/resp/info.html

[jj2]

Thanks.  It was the catch-up year amount i wasn't clear on.  But the guidelines don't seem to say you need to subtract out the amount contributed in the previous year (i.e., just claim the full $2500)

[Prairie Stash]

Catch up is correct. You can contribute for 2018 and play catch up for 2015 (its not just the last year).

The 17 is a bit confusing, its 17 and 364 days old as the final. So if your child turns 18 on Jan 3, 2021, your last contribution is 2021. In reverse, my 2 year old has 3 years of contibutions already, taking advantage of her bith year (age 0).

The 15 year old has 2018, 2019, and 2020 ($7500 plus catch up of 900/year - $2700 total) you should be able to get $10,200 into RESP. $2500/year/child and catch up for a previous year (not just last year, big difference). Using the catch up method, total RESP funding can occur within 7 years, from nothing to full match (age 10-17).

Children can put in their own money from working. This is an excellent way to get a 20% return on savings for University. Even leaving it as cash is fine when they're 17 and going to school in the fall. I started school at 17, under current rules I think I could have put my student loan money ($5000 of it) into an RESP and pulled $6000 out the next semester; provided it was a pre existing RESP.

"You can find the unused grant room for your child by calling Service Canada at 1-888-276-3624. You’ll need the child’s Social Insurance Number.]"
- if you phone you can get a copy of contibutions and the amounts you can catch up on for each year

[jj2]

Catch up is correct. You can contribute for 2018 and play catch up for 2015 (its not just the last year).

The 17 is a bit confusing, its 17 and 364 days old as the final. So if your child turns 18 on Jan 3, 2021, your last contribution is 2021. In reverse, my 2 year old has 3 years of contibutions already, taking advantage of her bith year (age 0).

The 15 year old has 2018, 2019, and 2020 ($7500 plus catch up of 900/year - $2700 total) you should be able to get $10,200 into RESP. $2500/year/child and catch up for a previous year (not just last year, big difference). Using the catch up method, total RESP funding can occur within 7 years, from nothing to full match (age 10-17).

Children can put in their own money from working. This is an excellent way to get a 20% return on savings for University. Even leaving it as cash is fine when they're 17 and going to school in the fall. I started school at 17, under current rules I think I could have put my student loan money ($5000 of it) into an RESP and pulled $6000 out the next semester; provided it was a pre existing RESP.

"You can find the unused grant room for your child by calling Service Canada at 1-888-276-3624. You’ll need the child’s Social Insurance Number.]"
- if you phone you can get a copy of contibutions and the amounts you can catch up on for each year

Thanks.  I had confirmed carry forward amounts from Service Canada.

Maybe I'm misunderstanding what you're saying here, but I thought you could only receive grants through the end of the child's 17th year.  You can keep depositing (assuming you're not over the 50k threshold), you just won't get grants.

Re; catch-up years, I think I've confirmed that you can claim the full $2500/yr/child, it's just the current year that I need to account for the contributions in the other plan.

There are also rules for setting up new plans for older kids; even though I've got an existing long standing plan, I think the new account would need to meet the criteria here.

[Prairie Stash]

Yeah, I think we're saying the same thing but I can't tell either. I'm pretty sure you understand everything, on the off chance though, I'll try to reword it.

Grants stop once you put in $36,000, provided you do the $2500/year method, $7200 total in CESG. Thats my target for RESP contributions.

"Re; catch-up years, I think I've confirmed that you can claim the full $2500/yr/child, it's just the current year that I need to account for the contributions in the other plan"
this part is where I'm confused. In 2018, 2019 and 2020, how much money are you putting into your RESP (all accounts) each year? Assuming you have always deposited $1600/year (since the child was age 0) the answer should be $3,400/year for this year and the next two years. If that's the case, we're on the same page.

To be clear, looking at a calendar, your child should have 18 annual contributions. That includes age 0, some people forget age 0 is a contribution year. That will be 15*1600 plus 3*3400 which is $34,200

Its better then you think. If your child is 15 and you started the pool plan 14 years ago, did you skip contributions in their birth year? You can catch up for the birth year and deposit $5000 this year and receive $1000 in grants (for 2018 and 2003).

I want to make sure we agree, this is important to me (I value education, hopefully your kid becomes a doctor and treats me when I'm old). The big issues are what happened in the birth year and how much are you putting in this year in total? This might require a spreadsheet to avoid confusions.

I think you'll end up contributing $35,800 out of the max grant matching $36,000 for child 1, missing $40 in grants (pretty much perfect). Child 2 will max out CESG. 

[jj2]

The difficulty is with the group plan, information is not clearly presented and a contribution that i make to the plan is not the same as a grant eligible contribution (i.e., there are fees).

What i'm trying to do is ballpark numbers for contributions to this new account.  I know the CESG contribution room and grant carry forward amounts.  What i can't precisely predict is the amount of grants i will receive through the group plan in future years.

Likely, i'll be contributing a little more than i'm eligible for in grants in the new account - that's ok, i just don't want to be way over.

Also, i agree that i will likely leave a little grant money on the table for child 1.

Thanks - appreciate the time you've taken to go through this.

The big lesson  which i'm sure most people know - think carefully before signing up to a group plan (i'm still hopeful there won't be any issues when it comes to withdrawals but i'm not 100% sure).

[Goldielocks]

Most group pooled plans (pooled scholarship/insurance plans) have the following challenges:

1)You need to maintain the agreed upon annual payments, with no gap, or a penalty (sometimes very large) is presented.  That's 18 years of quite high payments.
2) Often have a more limited range of schools that the funds can be used for.   (CESG can be used on a huge variety of post secondary and apprenticeship schooling, not just university.   Many pooled programs limit it to colleges and 4 year degrees only).
3) Returns that you were shown at the start when signing up are not guaranteed, as they relied upon others in the plan not pulling their full amounts out.
4) You can not ask for the CESG / AIP / EAP money first, when your kid starts school, you MUST withdraw your contributions first, leaving the income and CESG monies for last.  If you do not spend the full amount (because your kids does not go on to masters degree, or finish etc), then you don't get that income / CESG money, it is added to the returns that others  are paid out from.   

4 is the biggest drawback.  The plans count on people not being able to spend all the plan money on education, and that they (the plan) will keep some of it. 

Self managed RESPs allow you to pull the CESG/ income money first, leaving contributions to be reclaimed penalty free if not spent.  Depending on your agreement, and how much income you get when withdrawing contributions, varies widely.  Some plans are very poor at the guaranteed income upon withdrawal.

  Currently, many pooled plans now pay out less than assumed because so many kids are actually pulling on their funds and there is less default money to go to the others.   A friend is getting about half the money she expected, because they paused in contributions for a year, (and had penalties to do so) and the payouts are a lot less than the projections.

Just estimate how much grant money is going to the pooled plan, and contribute the excess, it is going to sit there, tax free until withdrawn, and your kid will likely be able to claim all that income by attending even a semester or two of school.... and you will get the original $$'s back if you don't need it for school.