RESPS and trusts

[c-kat]

My kids are 2 and 4 and I have some questions about saving for their future.

I currently have an RESP and because it is still small i have invested it in VABL for simplicity. I put the money in every January and then just have to buy one product. Our retirement accounts are in individual ETFS. I am wondering if I should be swapping VBAL for individual ETFS.  Curious what others are doing and what your asset allocation is?  Not sure I want to take too much risk as tuition is only 7K a year here in Ontario, so even with inflation the max deposit plus grant should cover that even without growth. Any growth could be used towards a graduate degree or put into our RRSPS. 

I'd also like to start putting a small amount of money away to start kids on the path to retirement- 1K per child per year that they would hopefully add to once they start working. Not sure what kind of options exist.  Trusts seem complicated.  Should we just open a separate non-registered account in our name and transfer the funds to them once they graduate university? Anyone else doing something like this?

[thriftyc]

Informal trust makes sense IMO.

[c-kat]

Informal trust makes sense IMO.

How does that work?

[daverobev]

Informal Trust - you can ONLY put child benefit, or fairly reasonable arms length money in. So family friends is ok, family is not (unless they live outside Canada... I don't know why...). And you need a nice clear paper trail, so CCB money comes in, then goes out - we had separate children's accounts set up to receive the money then go to IT brokerage accounts.

So then IF the CRA comes calling you can show them that only CCB money went there.

Bear in mind this means you get to do tax returns for your children :)

I would say switch from 80/20 I think VBAL is down to 60/40 down to... as they get closer to needing the money. If it has grown more than will be needed for tuition leave that in stocks... can use for a house downpayment, take it out and put it into a TFSA or whatever. But the cash they need for tuition should be in low volatility stuff 5 years before uni.

[Goldielocks]

RESP -- The money will only be in there for up to 20years, so VBAL is fine.  The incremental gains by optimizing your accounts take a bit of effort (and can have some drag in admin fees) so your time is better spent on optimizing your retirement accounts which have a much longer lifespan.

For informal trust -- I recommend just adding to the RESP, even more than the max for the CESG contribution matching.  It all grows tax free, is taxed in kid's names when withdrawn, and can be fully withdrawn pretty much in the first year (two semesters) of them attending post secondary... and many, many FT programs, not just university qualify.

It will save you from opening and managing yet another account, and has tax free growth.

There is a lifetime max of contributions of $50k per child to the RESP (only a portion of this is matched).