Canadian RESP - questions

[Le North Dreamer]

Hi,

Fellow canucks, now that I'm about to become a dad, I'd like to get a better handle on the RESP thing as it looks quite favourable in terms of tax treatment and gov. grants. I'm from Quebec so would be getting grants from the Canadian and Quebec govs. I have a good understanding of the basics around RESPs but had questions on the practical side of things.

Here are my questions:

• Does anyone has experience in self-managing an RESP account at a discount broker? I'm with Virtual Brokers and would rather open a self-directed RESP than opening a collective RESP.
• Sub question - With a discount broker self-directed account, are governmental grants handled by the broker and deposited directly in your account or do you have to do the work yourself?
• Let's say you have multiple children, do you have a single account for the family or do you open one account per child?
• Finally, I'd like to maximize gov. grants while not putting an additional cent in there (I have other uses for such money). I read that putting 2.5K per year should maximize the governmental grants (at least in Quebec) and was planning to drop that amount in the RESP each year, but wanted to see if anyone has a different view or strategy.

Thanks!

[max9505672]

Post to follow

[Islander]

Hi,

We hold our 2 kids RESP at Wealthsimple, we are able to receive all the grants there. We have a family resp account vs individual child. :) I consider myself a lazy passive investor so its nice to have all the work of rebalancing done automatically.

[BSL18]

Hi,

We hold our 2 kids RESP at Wealthsimple, we are able to receive all the grants there. We have a family resp account vs individual child. :) I consider myself a lazy passive investor so its nice to have all the work of rebalancing done automatically.

- Unfortunately Wealthsimple is not qualified for the IQEE (Quebec side of the grants). LND, you'll have to choose from these: https://www.revenuquebec.ca/fr/citoyens/credits-dimpot/incitatif-quebecois-a-lepargne-etudes/liste-des-fournisseurs-de-reee/
I'll be using national bank direct brokerage so that I get the whole 30% grant (20% Federal and 10% Provincial).
- Grants are deposited directly in the RESP, you can't spend them on anything else as you might have to reimburse them if the kiddo doesn't give a **** about university.
- You can have both options for the accounts. Either several personal or one family RESP. They both are very similar, if one kid does not use the RESP then a family one makes it easier to transfer (however being possible with both). If you're tight to contribute the max, when you first start taking back your money for the 1st kid, you can use it again for the 2nd one. Really pretty similar in the end.
- The only strategy really is to dump 2500$ in there every January. If you still have space in your RRSP and TFSA, stop at 36k$ (max. grants reached unless you're earning less than 45K as a family), or if RRSP and TFSA are full, keep going until you contribute 50k (max contribution) as what you contribute will keep growing tax-free. Plan here is just to keep all the money both governments give you for having a kid in a HISA and dump it in the RESP every January.

[TrMama]

Hi,

We hold our 2 kids RESP at Wealthsimple, we are able to receive all the grants there. We have a family resp account vs individual child. :) I consider myself a lazy passive investor so its nice to have all the work of rebalancing done automatically.

- Unfortunately Wealthsimple is not qualified for the IQEE (Quebec side of the grants). LND, you'll have to choose from these: https://www.revenuquebec.ca/fr/citoyens/credits-dimpot/incitatif-quebecois-a-lepargne-etudes/liste-des-fournisseurs-de-reee/
I'll be using national bank direct brokerage so that I get the whole 30% grant (20% Federal and 10% Provincial).
- Grants are deposited directly in the RESP, you can't spend them on anything else as you might have to reimburse them if the kiddo doesn't give a **** about university.
- You can have both options for the accounts. Either several personal or one family RESP. They both are very similar, if one kid does not use the RESP then a family one makes it easier to transfer (however being possible with both). If you're tight to contribute the max, when you first start taking back your money for the 1st kid, you can use it again for the 2nd one. Really pretty similar in the end.
- The only strategy really is to dump 2500$ in there every January. If you still have space in your RRSP and TFSA, stop at 36k$ (max. grants reached unless you're earning less than 45K as a family), or if RRSP and TFSA are full, keep going until you contribute 50k (max contribution) as what you contribute will keep growing tax-free. Plan here is just to keep all the money both governments give you for having a kid in a HISA and dump it in the RESP every January.

Is the bolded part above specific to Wealthsimple accounts in Quebec? I don't do that, but I'm also in BC and the kid's RESP is with a national bank. I have no issues with getting all the grant money we're entitled to. My contributions are set up as automatic biweekly transfers that coincide with payday.

[BSL18]

No, you can very well do biweekly transfers. However time in the market being what it is, I'd rather just save the different government grants (Allocation Famille in Quebec, CCB for federal) and transfer them in January to have them working for me all year long. Both options will come out very close and yours is great as well, most important point being to understand that RESP should probably be considered the most important saving account in the first years of a kid, ahead of RRSP and TFSA if filling all of them is not possible.

[Le North Dreamer]

Thank you everyone for the quick answers! I'm definitely going to set up a family account at Virtual Brokers and take it from there.

Cheers!

[Goldielocks]

Hi,

Fellow canucks, now that I'm about to become a dad, I'd like to get a better handle on the RESP thing as it looks quite favourable in terms of tax treatment and gov. grants. I'm from Quebec so would be getting grants from the Canadian and Quebec govs. I have a good understanding of the basics around RESPs but had questions on the practical side of things.

Here are my questions:

• Does anyone has experience in self-managing an RESP account at a discount broker? I'm with Virtual Brokers and would rather open a self-directed RESP than opening a collective RESP.

Yes, self -directed is the way to go

• Sub question - With a discount broker self-directed account, are governmental grants handled by the broker and deposited directly in your account or do you have to do the work yourself?

Around the end of the month, your brokerage does an electronic "handshake" with the government to tell them how much you put in that month, and the government checks for the total they have given you so far for those beneficiaries, including any accounts grandma has set up and paid into earlier in the year that you don't know about...  then you get the CESG funds (and provincial funds) added to the same account, for you to manage with the rest of the RESP money.  The bank keeps a notational track of how much of the money came from original contributions from you, how much from CESG grants, Provincial Grants, and the remainder is called "Accumulated Income" or AI

• Let's say you have multiple children, do you have a single account for the family or do you open one account per child?

Family account can include all blood related offspring in one group, because what one does not use becomes available to the other children in that family, even if you chose individual accounts, except then it requires more paperwork.  The bank just keeps track of how much CESG eventually gets paid out to each child, to the lifetime max of $7200, same with provincial grants

• Finally, I'd like to maximize gov. grants while not putting an additional cent in there (I have other uses for such money). I read that putting 2.5K per year should maximize the governmental grants (at least in Quebec) and was planning to drop that amount in the RESP each year, but wanted to see if anyone has a different view or strategy.

Thanks!

A better strategy for Federal CESG grants:
1.  Establish the RESP early in the children's lives, and add at least $2000 per child well before they are 15... earlier the better.
2.  If provincial grants require anything to get bonus money, do that.
3.  Don't contribute anything more until the kids are at least 11.  Definitely Start over-contributing before they are 14.  You can contribute $5000/child each year for maximum federal grant, if you have room available.  The maximum for maximum lifetime grant is $36k, so that would take you approx 7 years, if you already have $2k in there from infancy.  e.g.   Age 11, 12, 13, 14, 15, 16, 17.   Put $5k per child into the RESP.   This would give you $7200 total grant money, plus $35k, plus your original $2k = $44,200 per child.
4.  Note that many people do not need to save this much for the education, you can withdraw excess contributions once your child starts school.  Only the child gets the $7200 (plus provincial) grants, but you can get back all your contributions and roll excess income into your RRSP, or take it as cash if you kid does not use it and is 21 years, if you give some of it back to the government (I mean, some of the income came from their portion of the money anyway, so it is understandable they want some of the income back).

This strategy gets you the maximum grant, cashed out in your kids' hands in the fewest possible years.   It has the largest ROI.

More importantly, the years from age 1 to 10 you would take the money and maximize your RRSP and TFSA, where it will grow the most aggressively for the most decades and the TAX FREE GROWTH MATTERS FAR FAR MORE in your RRSP, because of how much longer it is in there and the fact that you will not need to be as conservative with it compared to the RESP that you start spending in less than 20 years.

ALTERNATE if you have LOTS and LOTS of Money
IF you are already maxing out your RRSP and your TFSA, then to get even more tax-free growth provided by the RESP compared to non-reg accounts, then of course you can put your excess money into your RESP each year (up to a limit).   Most of us don't have that much money when our kids are smaller, though, given child care and family recreational expenses.   

In this alternate strategy example you can contribute up to $14k/child to the RESP.   It is best to do it as early as possible, in their primary years, to give it time to grow to make it worth your while, given the challenges in withdrawing if your children do not go to post secondary.   It won't get any more grant matching, but will be tax sheltered for longer.

NOTE - This Alternate strategy was the only strategy when RESPs were first developed -- $50k max contributions per child, as tax-free growth until withdrawn in the child's hands for school. It worked well for high income folks in the decades when bond interest was high.  It was only years later that CESG grant money was added to the concept of RESPs.

[Le North Dreamer]

Goldielocks, you are awesome!

Lots of useful info in there.

Thanks for the strategies, I will definitely go for one of these depending on our financials in the early years. While we do have a bit of TFSA room ATM, we are almost maxing out everything so we may end up doing the alternate strategy to max out tax-free growth. To be determined!

[RetiredAt63]

I'm going to be the Grandma Goldielocks talked about.   ;-) 

Except that DD knows I am planning to open one for DGD and any other kids she has, so family plan.  Really she has to know, since I will need DGD's SIN to open the account, I believe.  At this point their family allowance will be used for something else which I think is really worthwhile.  None of the other grandparents or great grandparents have said anything to her about RESPs, but they may once DGD is born (June).  Anyway, so far the only one planning anything is me.

I do want to contribute to my grandchild(ren)'s education.  My parents paid the difference between the money I could contribute and what my costs were so I graduated undergrad debt-free.  Broke, mind you, but debt-free.  It made it a lot easier to go on to grad school, where I also graduated broke but debt-free.

Obviously my strategy is not going to be the same as the strategy for a parent.  I'm retired so my RRSP is irrelevant.  My TFSA is all set.  We have been discussing this a bit in my journal, and basically I can do an RESP, or set up a mutual fund in trust (what I did for DD with my family allowance before RESPs ever existed), or some combination of both.

DD and I are both in Ontario, and my TFSA/RRIF etc. are with BMO, if that affects things.

So suggestions, comments, pros and cons of full RESP versus in trust mutual fund versus enough RESP to get the match plus rest in mutual fund?   Or something I haven't even thought of yet?

And not RESP, but I am also planning changes to my will once DGD is born.  Got to plan for new family members.  My grandparents left some money to their grandchildren, even my great-uncle left a bit to great-nephews and nieces.  So, family tradition.   ;-)

Around the end of the month, your brokerage does an electronic "handshake" with the government to tell them how much you put in that month, and the government checks for the total they have given you so far for those beneficiaries, including any accounts grandma has set up and paid into earlier in the year that you don't know about...

[Prairie Gal]

Another Grandma chiming in, and posting to follow. Grand-twins were born on January 18. I am thinking of going the family RESP route once they get SIN's, but I need to research what happens in the unlikely case that neither one wants to go to post-secondary school.

[RetiredAt63]

Another Grandma chiming in, and posting to follow. Grand-twins were born on January 18. I am thinking of going the family RESP route once they get SIN's, but I need to research what happens in the unlikely case that neither one wants to go to post-secondary school.

We need an RESP and grandparents thread.  We can't be the only ones.   ;-)

10 days old, wow.  I guess the parents are a bit busy with twins, getting their SINs can wait a bit.

[Prairie Gal]

Another Grandma chiming in, and posting to follow. Grand-twins were born on January 18. I am thinking of going the family RESP route once they get SIN's, but I need to research what happens in the unlikely case that neither one wants to go to post-secondary school.

We need an RESP and grandparents thread.  We can't be the only ones.   ;-)

10 days old, wow.  I guess the parents are a bit busy with twins, getting their SINs can wait a bit.

Yes, I am pretty sure that is the last thing on their sleep-deprived minds right now. lol.

[Stasher]

When the kids turn 21 the original subscriber can withdraw the original contributions with no tax implications.
The earned interest/income of the contributions can be withdrawn at a 20% tax withhold on top of regular taxation as a T4a
The unused CESG must be repaid to the government.

I'm at this point right now as my son finishes post secondary (mechanic) this week and I pull his remaining funds out. My daughter is 21 in 18 months and has no plans to go to school as far as we can tell. Thus I will max out my son's CESG hopefully with an EAP and pull a bit extra with a PSE. Then I am allowed to pull out the maximum of the remaining original contributions with no limits or implications. The remaining CESG money and earned income will sit in the account until my daughter decides for sure at 21 she has no plans. Then I will wind down the remaining funds in the account as described at the top.

[Goldielocks]

Another Grandma chiming in, and posting to follow. Grand-twins were born on January 18. I am thinking of going the family RESP route once they get SIN's, but I need to research what happens in the unlikely case that neither one wants to go to post-secondary school.

Stasher's response is good... although you can get your original contributions (partial or fully)  back before 21, too, but CESG is paid back when that happens, and no CESG matching occurs for the next 2 years as a penalty if the child is under 17.

This reply is for "what is neither one wants to go to post secondary".
see also:
https://www.canada.ca/en/services/benefits/education/education-savings/resp/use.html

1.  Today, there are 2052 schools that qualify as post secondary for receiving CESG (or student loans), including many international schools, and over 500 designated private schools in BC alone.  Think of education such as some 6 month to 1 year trade or computer programs, digital art, appliance repair, hair stylist, language studies in another country...  the only key is that the program must be at one of these 2000+ designated schools, and a minimum length in terms of weeks and hours / week (i.e., FT) attendence.

It is very likely that one of the two young relatives would end up in some sort of program that would use up some of the grant money / accumulated income money.  These do not need to be full diploma / degree programs, one year trade programs work, too.

2. The RESP if unused can be transferred to a blood sibling, which is why family RESP naming multiple beneficiaries are a thing.

2b.  The RESP can stay open, with tax free growth, until the RESP is 36 years old.

3a.  You can close it "early" and 'unused" before the youngest is 21, if you return all grant monies and accumulated income.  You keep all your original contributions.  Note, The original contributions are always considered to be the property of the contributor (owner) of the RESP, not the child, until you choose to withdraw them in their name.  Note 2, that any contributions in the next 2 years won't be matched, a sort of penalty for withdrawing before the child is 17.

3b. BUT! You can keep the accumulated income earned if it is closed after the RESP is at least 10 yrs old and the youngest is 21, and you roll it over to RRSP, OR pay an extra tax on the income and keep it as cash.  You always get your original contributions back, tax and penalty free.

4.  If one of the beneficiaries has a registered disability, you can transfer the income in the RESP to an RDSP in their name.  (Subject to the typical RDSP limits and rules, if you have one, these are the same limits).

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It's pretty hard to screw this up and not get your original contributions and the income / interest it generated back.  Even the extra tax penalty on the income is roughly the amount that the government's portion (the CESG) earned, which was never your money to start with, anyway.

The largest issue is that the accumulated income in the account is locked up for at least 10 years, you lose it if you try to close out the account before the time limit is up.   

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If only one recipient goes to school, for 1 term only, then it can also be hard to unlock all of the accumulated income, as there is a max of $5k to withdraw as combined CESG and accumulated income in the first term.  For example, my son just withdrew $5k as CESG + Income last term (the max allowed).  About $3500 of that was income and $1500 was CESG, if he quit school after 1 term only, and was the only child, then the rest of the CESG goes back to the government and I either lose all the rest of the accumulated income (it could be $10k) or I have to wait until he is 21 to take it as a roll over to RRSP or with the extra tax hit.
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As soon as one of the children goes into their 2nd term of school, you can withdraw everything remaining and close the account.  The CESG must be in the child's name, but the rest can revert back to the contributor.

In my case, my son is in his 2nd term, and we will go and close out the account soon.

[Blissful Biker]

My oldest is in Grade 11, so I have some time but want to start learning about RESP withdrawals.  This thread has been very helpful.  Thanks!

A very basic question, how do I find out what portion of the RESP balance is contributions vs CESG vs AI?  I assume the bank tracks that.  The RESP is in ETFs on BMO Investorline and I have poked around and can not find the information.  Was I supposed to tracking?

[Stasher]

The financial company I have my RESP at gives me a full summary of all my contributions, CESG and growth. It has been helpful in trying to figure out my gameplay forward. Being your oldest is in Grade11 right now have you started making some cash available from your investments so it is readily available for next fall?

[RetiredAt63]

My oldest is in Grade 11, so I have some time but want to start learning about RESP withdrawals.  This thread has been very helpful.  Thanks!

A very basic question, how do I find out what portion of the RESP balance is contributions vs CESG vs AI?  I assume the bank tracks that.  The RESP is in ETFs on BMO Investorline and I have poked around and can not find the information.  Was I supposed to tracking?

Which ETFs did you use?  I am also using BMO Investorline, and will be starting an RESP for my granddaughter this spring, so lots of time for it to grow.  I do hope BMO Investorline tracks it, I sure don't want to!

[Blissful Biker]

The financial company I have my RESP at gives me a full summary of all my contributions, CESG and growth. It has been helpful in trying to figure out my gameplay forward. Being your oldest is in Grade11 right now have you started making some cash available from your investments so it is readily available for next fall?

Thanks Stasher.  I'll ring BMO to see where I can find the information.  I haven't started making cash available.  I figured I would just maintain the 60 bonds /40 equities asset allocation as I withdrew over time.  Perhaps I should think about to bringing that to 70/30 or 80/20.

Which ETFs did you use?  I am also using BMO Investorline, and will be starting an RESP for my granddaughter this spring, so lots of time for it to grow.  I do hope BMO Investorline tracks it, I sure don't want to!

I am in a plain vanilla Canadian Couch Potato portfolio.  Bonds are ZAG, Canadian equities are VCN and global equities are XAW. 

It's great that you're starting early for your granddaughter.  We did the same but quit contributing after about 12 years to focus on retirement.  We also wanted to give the kids a solid step up but make sure they still had skin in the game.  Our target was to fund three years of schooling each, with that extra year to fund on their own providing encouragement to get scholarships, grants, summer jobs, etc.  The market has done so well that we now have enough for 4+ years each.  While not the plan, it is an excellent problem to have!

[Blissful Biker]

A quick call to the bank was able to get me the current RESP breakdown I was looking for for our two teenagers, in Grade 10 and 11:

Contributions:         $73K
Grants:                   $14K (reached the maximum)
Income Generated:  $82K (beautiful market growth!)
Total:                      $169K

That should be plenty to get them each a four year degree, especially since they plan to live at home and go to the local college for the first year.

Grandpa has always planned to help each grandchild get their first car.  My kids are at that age now but have decided they would rather take public transport than burn fossil fuels and pay for insurance on their own vehicle, which makes me quite happy.  Grandpa supports their decision too and has instead given them $10K each.  I proposed to kids and grandpa that we put the money in the RESP and they like that idea.  DH and I stopped contributing about 5 years ago, turning it over to the kids to watch it ride the market waves and plot out how to make best make use of it.

Before I pull the trigger, moving the $20K into the RESP to bring the total to $190K I wanted to run it by you guys.

Pros:
- it can grow tax free.  Otherwise growth would be taxed in my name and I still have a very high tax rate.
- easy family book keeping, ie the kids funds are in a single account
- after initial limit of $5K withdrawal for the first 13 weeks we can remove the money anytime if we wanted to

Cons:
- a bit of paper work with the bank to get the money out

Am I missing anything?  Even though they probably wont need the money for university (unless they choose extended programs) I don't see any harm in putting the $20K in the RESP.  We would still be under the lifetime limit of $50K of contributions per kid.  The kids plan to be frugal through university and use the RESP excess when they graduate when for a Tesla (DS1) and travel (DS2).

Its a great problem to have.  Thanks for the input.

[ElleFiji]

Just FYI the financial institution has to track the grant income separately from the investment income, and grant income is lost if the student doesn't go to school. Grant income can also be worth accumulating as soon as possible. Those trackers don't matter in most cases, just if a customer service rep has to break down what you and the child get in each scenario.

[Goldielocks]

I am spitting mad.

I have two kids - one is 2 years older.
After the eldest aged out of the matching grant, the next year's contribution -- $10k (I was playing catch up), for my one son, aged 16, was  applied to both beneficiaries, 50/50.

So, only $5k was matched for CESG.

The next year, same thing, only half of my contribution was matched, not the full amount.

There was no way to find this out, as it takes DAYS for TD to check what your balances / contributions are going to, and each call to request took 2+hours on hold. they don't put this information or the EAP / AI / Contributions split on any statements, either. Honestly, for family RESP accounts, the banks should have an automatic default (or god forbid - call the client when they see it happen) to get the max CESG by applying it to the under age persons first.

AND, at a minimum, there should have been a reminder (group email?  annually?  written on the Dec statements?) to check the contribution allocations to beneficiaries.   When I started the account, they did not mention it.   When I complained I was told that I could have called (see 2+ hours on hold), to get it updated to 0%/ 100% before the contribution.  I did not even know this was a thing I had to call about!

So - be aware-- if you have a family RESP, and one kid aged out of CESG -- Call to change the beneficiary % designations.

I lost out on $2k of CESG.

Plus any increase based on the investments for 2 years.