RESP

[frugalcanuck]

I opened up a Family RESP for my daughter.  The government matches up to 20% or $500 per year.  I am investing the money in Vanguard.  The question is.. would my daughter be better off with a TFSA or RESP?
The withdrawals are taxed as income when you withdrawal from RESP and there are no taxes when you withdrawal from TFSA.

When her investments grow, she will be paying a 20.5% tax of a grown investment while only getting a 20% match.

I guess it is to RRSP vs TFSA

[Stasher]

No the withdrawals are only taxed if she takes them as EAP. Also she won't be making money at that point and her tax bracket will be the lowest so the taxes she pays will be nil. If you take a PSE (capital) withdrawal there are no taxes on the funds and it goes to you not your daughter.

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

[daverobev]

You don't get TFSA room til you're 18.

RESP you only pay tax on the growth, and people in education tend to have little other income so will be in the lowest bracket/in the tax allowance and pay nothing.

TFSA contributions are after tax, and the growth is never taxed. I wouldn't put more into an RESP than the max, but I would and am contributing enough to get roughly the entire grant, though not year by year (max grant is $7200 total).

[Reggie]

I had family RESP for a few years and accumulated about $12,000 pretty quickly but I have since decided to stop contributing. Here's why.  Living in Ontario, I keep hearing every month about all the new Ontario tuition grants.  We plan to be well into FI by the time our kids go to college/university and living on a probably $30,000 a year. With a lot of it potentially coming from TFSA.

So our kids will likely receive enough government grants to get a free tuition. Obviously these programs can always be pulled back but then again, they could always even get better. Maybe we will have universal tuition in 2030...

Just something to consider if you plan to be FIRE before your kids reach college/university.

Check out this update last month: https://www.thestar.com/news/queenspark/2017/09/11/one-third-of-ontario-college-and-university-students-receive-free-tuition.html

[Prairie Stash]

I had family RESP for a few years and accumulated about $12,000 pretty quickly but I have since decided to stop contributing. Here's why.  Living in Ontario, I keep hearing every month about all the new Ontario tuition grants.  We plan to be well into FI by the time our kids go to college/university and living on a probably $30,000 a year. With a lot of it potentially coming from TFSA.

So our kids will likely receive enough government grants to get a free tuition. Obviously these programs can always be pulled back but then again, they could always even get better. Maybe we will have universal tuition in 2030...

Just something to consider if you plan to be FIRE before your kids reach college/university.

Check out this update last month: https://www.thestar.com/news/queenspark/2017/09/11/one-third-of-ontario-college-and-university-students-receive-free-tuition.html

Books, rent, food and other living expenses come from RESP as well. Grad school, Doctor, Lawyer or other longer programs? RESP plays a big role. Even living at home students can pay rent to their parents, from the RESP. Its quite common for a 20 year old student to pay for food and rent, everyone has expenses.

Its a common misconception that the RESP must be spent on school, if you read the terms it says the child must be enrolled in school. There is absolutely nothing preventing a child on full scholarship from transferring the RESP money into their TFSA while in school. Since most students have low income, it should be tax free on withdrawal and gain instant tax free status. With the 20% top up it becomes the greatest savings plan available for children, with the one catch they must enroll in school to get the money out.

[joonifloofeefloo]

Yeah, I max the RESP even while knowing it may or may not be used for education, and even while I receive school grants so large I'm essentially being paid to go to school.

I receive the grants, invest it all, leave it to grow...and in future my child will use it for school costs not covered by grants OR we'll roll it over into an RRSP OR roll it into his RDSP...

Worst case scenario, all of those options would disappear (I doubt it), we'd cash it out, give the grants and learning bonds back, but keep our original contributions plus the investment gains on all of the above.

Any which way it seems to be highly worthwhile.

[Reggie]

I had family RESP for a few years and accumulated about $12,000 pretty quickly but I have since decided to stop contributing. Here's why.  Living in Ontario, I keep hearing every month about all the new Ontario tuition grants.  We plan to be well into FI by the time our kids go to college/university and living on a probably $30,000 a year. With a lot of it potentially coming from TFSA.

So our kids will likely receive enough government grants to get a free tuition. Obviously these programs can always be pulled back but then again, they could always even get better. Maybe we will have universal tuition in 2030...

Just something to consider if you plan to be FIRE before your kids reach college/university.

Check out this update last month: https://www.thestar.com/news/queenspark/2017/09/11/one-third-of-ontario-college-and-university-students-receive-free-tuition.html

Books, rent, food and other living expenses come from RESP as well. Grad school, Doctor, Lawyer or other longer programs? RESP plays a big role. Even living at home students can pay rent to their parents, from the RESP. Its quite common for a 20 year old student to pay for food and rent, everyone has expenses.

Its a common misconception that the RESP must be spent on school, if you read the terms it says the child must be enrolled in school. There is absolutely nothing preventing a child on full scholarship from transferring the RESP money into their TFSA while in school. Since most students have low income, it should be tax free on withdrawal and gain instant tax free status. With the 20% top up it becomes the greatest savings plan available for children, with the one catch they must enroll in school to get the money out.

Good points.  I am hoping my kids will choose somewhere local and live for free at home but I never though of accepting rent (paid through an RESP).  I don't think I realized how many options you get to use your RESPs on. Thanks.

[Prairie Stash]

I had family RESP for a few years and accumulated about $12,000 pretty quickly but I have since decided to stop contributing. Here's why.  Living in Ontario, I keep hearing every month about all the new Ontario tuition grants.  We plan to be well into FI by the time our kids go to college/university and living on a probably $30,000 a year. With a lot of it potentially coming from TFSA.

So our kids will likely receive enough government grants to get a free tuition. Obviously these programs can always be pulled back but then again, they could always even get better. Maybe we will have universal tuition in 2030...

Just something to consider if you plan to be FIRE before your kids reach college/university.

Check out this update last month: https://www.thestar.com/news/queenspark/2017/09/11/one-third-of-ontario-college-and-university-students-receive-free-tuition.html

Books, rent, food and other living expenses come from RESP as well. Grad school, Doctor, Lawyer or other longer programs? RESP plays a big role. Even living at home students can pay rent to their parents, from the RESP. Its quite common for a 20 year old student to pay for food and rent, everyone has expenses.

Its a common misconception that the RESP must be spent on school, if you read the terms it says the child must be enrolled in school. There is absolutely nothing preventing a child on full scholarship from transferring the RESP money into their TFSA while in school. Since most students have low income, it should be tax free on withdrawal and gain instant tax free status. With the 20% top up it becomes the greatest savings plan available for children, with the one catch they must enroll in school to get the money out.

Good points.  I am hoping my kids will choose somewhere local and live for free at home but I never though of accepting rent (paid through an RESP).  I don't think I realized how many options you get to use your RESPs on. Thanks.

My kids will pay rent too. Because it will be more of a roommate situation, as opposed to a separate legal suite, its entirely tax free income if you choose to charge them. If you choose not to charge them, your budget will take a hit at their 19th birthday when the CCB runs out I'm not telling you what to do). So you'll have reduced child cheques, but constant food bills. The RESP can be used to bridge that gap, while they live at home and eat your food. Depending what you're paying for (food, gas clothes etc.) while they're at school, it could be around $300/month in bills for them for 48 months, easily $14,400; that the CCB will no longer be covering. Please fill in your own numbers, the $300 was just pulled from the air.

Getting it funded through the RESP saves you 20% and will be exactly like you invested the money in your own TFSA (which is likely already maxed if you plan on FIRE). Its a small tax break, the 20% topup could be supplying most of the food they eat during school (you can get $7200 in matches, which compounds with growth and could conceivable be worth $14,000), while you get back the money you initially put in and then run through your own taxable accounts (after a decade of near tax free status - since most students pay little to no taxes on their small earnings).

All your contributions are returned tax free from an RESP. Only growth and the 20% match is taxed, in the hands of the child. Often this means no tax is owed, just like a TFSA.

[Stasher]

Yup... we just pulled $2000 as an EAP to my son so he could buy his professional large toolbox and tools as he just finished his first year of HD Mechanics and needs tools for his apprenticeship.

As I keep learning more I should have just pulled more out and then put it into my own accounts and dispersed as needed. The less onerous paperwork I need to do to make these RESP withdrawals the better.

[elaine amj]

I had family RESP for a few years and accumulated about $12,000 pretty quickly but I have since decided to stop contributing. Here's why.  Living in Ontario, I keep hearing every month about all the new Ontario tuition grants.  We plan to be well into FI by the time our kids go to college/university and living on a probably $30,000 a year. With a lot of it potentially coming from TFSA.

So our kids will likely receive enough government grants to get a free tuition. Obviously these programs can always be pulled back but then again, they could always even get better. Maybe we will have universal tuition in 2030...

Just something to consider if you plan to be FIRE before your kids reach college/university.

Check out this update last month: https://www.thestar.com/news/queenspark/2017/09/11/one-third-of-ontario-college-and-university-students-receive-free-tuition.html

Books, rent, food and other living expenses come from RESP as well. Grad school, Doctor, Lawyer or other longer programs? RESP plays a big role. Even living at home students can pay rent to their parents, from the RESP. Its quite common for a 20 year old student to pay for food and rent, everyone has expenses.

Its a common misconception that the RESP must be spent on school, if you read the terms it says the child must be enrolled in school. There is absolutely nothing preventing a child on full scholarship from transferring the RESP money into their TFSA while in school. Since most students have low income, it should be tax free on withdrawal and gain instant tax free status. With the 20% top up it becomes the greatest savings plan available for children, with the one catch they must enroll in school to get the money out.

I have some hopes that my kids will get free tuition here in Ontario. It will all depend on when I FIRE. Also, my DD is doing very well in school and is hoping for scholarships.

My plan from the very beginning (16 years ago) was to contribute the max to get the 20% grant and then claw back some of the money from them when they get to start taking the money out. Either through charging them rent or whatever. My children are aware of this. Our only intention all along has been to cover their tuition and we want them to be responsible for their living expenses.

[Goldielocks]

I had family RESP for a few years and accumulated about $12,000 pretty quickly but I have since decided to stop contributing. Here's why.  Living in Ontario, I keep hearing every month about all the new Ontario tuition grants.  We plan to be well into FI by the time our kids go to college/university and living on a probably $30,000 a year. With a lot of it potentially coming from TFSA.

So our kids will likely receive enough government grants to get a free tuition. Obviously these programs can always be pulled back but then again, they could always even get better. Maybe we will have universal tuition in 2030...

Just something to consider if you plan to be FIRE before your kids reach college/university.

Check out this update last month: https://www.thestar.com/news/queenspark/2017/09/11/one-third-of-ontario-college-and-university-students-receive-free-tuition.html

FYI,  Ontario chose to add tuition grants (as part of the Canada Student Loan / Ontario Student Loan application process), instead of capping tuition for domestic students.   In BC, the government capped tuition increases per year (to about 2% per year so far).    This has created a fairly large difference in the tuition, about $1000/yr cheaper in BC for a similar science or arts degree, but there are not so large grants for students with financial need.  (other provinces also fund tuition directly --> quebec, etc).

At the end of the day, if your student will live at home, and work in summers, they will not need a lot of money to attend a typical 4 year science / programming / engineering / art / fine art undergrad degree.  Some of the newer programs, such as business or fancy exchange or poli science degrees with foreign experience are a lot more.

The 20% match in RESP is awesome,and you only need to save $25k (minus student income) for a 4 year degree in BC, $30k in Ontario.  Students can work and easily save $3k / summer x 3 = $9k of that.

Bottom line?   Save for your retirement first, but the 20% match is nice to grab once they are 12 and older, given the short turn around until withdrawal.

[Goldielocks]

I had family RESP for a few years and accumulated about $12,000 pretty quickly but I have since decided to stop contributing. Here's why.  Living in Ontario, I keep hearing every month about all the new Ontario tuition grants.  We plan to be well into FI by the time our kids go to college/university and living on a probably $30,000 a year. With a lot of it potentially coming from TFSA.

So our kids will likely receive enough government grants to get a free tuition. Obviously these programs can always be pulled back but then again, they could always even get better. Maybe we will have universal tuition in 2030...

Just something to consider if you plan to be FIRE before your kids reach college/university.

Check out this update last month: https://www.thestar.com/news/queenspark/2017/09/11/one-third-of-ontario-college-and-university-students-receive-free-tuition.html

Books, rent, food and other living expenses come from RESP as well. Grad school, Doctor, Lawyer or other longer programs? RESP plays a big role. Even living at home students can pay rent to their parents, from the RESP. Its quite common for a 20 year old student to pay for food and rent, everyone has expenses.

Its a common misconception that the RESP must be spent on school, if you read the terms it says the child must be enrolled in school. There is absolutely nothing preventing a child on full scholarship from transferring the RESP money into their TFSA while in school. Since most students have low income, it should be tax free on withdrawal and gain instant tax free status. With the 20% top up it becomes the greatest savings plan available for children, with the one catch they must enroll in school to get the money out.

I have some hopes that my kids will get free tuition here in Ontario. It will all depend on when I FIRE. Also, my DD is doing very well in school and is hoping for scholarships.

My plan from the very beginning (16 years ago) was to contribute the max to get the 20% grant and then claw back some of the money from them when they get to start taking the money out. Either through charging them rent or whatever. My children are aware of this. Our only intention all along has been to cover their tuition and we want them to be responsible for their living expenses.

Elaine -- we think alike.  I have "overfunded"* the RESP by at least $20k + income right now, and we will begin withdrawing it in earnest after Feb 2018. (back to mom and dad).     The difference is that I only started overfunding when the oldest turned 16, so 2 years until withdrawal of the extra.   

*amount over what I have promised each kid for college. 

[daverobev]

I had family RESP for a few years and accumulated about $12,000 pretty quickly but I have since decided to stop contributing. Here's why.  Living in Ontario, I keep hearing every month about all the new Ontario tuition grants.  We plan to be well into FI by the time our kids go to college/university and living on a probably $30,000 a year. With a lot of it potentially coming from TFSA.

So our kids will likely receive enough government grants to get a free tuition. Obviously these programs can always be pulled back but then again, they could always even get better. Maybe we will have universal tuition in 2030...

Just something to consider if you plan to be FIRE before your kids reach college/university.

Check out this update last month: https://www.thestar.com/news/queenspark/2017/09/11/one-third-of-ontario-college-and-university-students-receive-free-tuition.html

FYI,  Ontario chose to add tuition grants (as part of the Canada Student Loan / Ontario Student Loan application process), instead of capping tuition for domestic students.   In BC, the government capped tuition increases per year (to about 2% per year so far).    This has created a fairly large difference in the tuition, about $1000/yr cheaper in BC for a similar science or arts degree, but there are not so large grants for students with financial need.  (other provinces also fund tuition directly --> quebec, etc).

At the end of the day, if your student will live at home, and work in summers, they will not need a lot of money to attend a typical 4 year science / programming / engineering / art / fine art undergrad degree.  Some of the newer programs, such as business or fancy exchange or poli science degrees with foreign experience are a lot more.

The 20% match in RESP is awesome,and you only need to save $25k (minus student income) for a 4 year degree in BC, $30k in Ontario.  Students can work and easily save $3k / summer x 3 = $9k of that.

Bottom line?   Save for your retirement first, but the 20% match is nice to grab once they are 12 and older, given the short turn around until withdrawal.

Do you know how it works if, for example, someone from Ontario goes to university in BC? IE, do you get grants from BC to match the lower tuition costs? OSAP doesn't apply - right?

Just wondering if there is any arbitrage possible.

[Goldielocks]

Students apply for loans where they (or if dependents, their parents) live.   So Ontario grants generally go to Ontario domiciled students, even if they are going to school in BC.  And vice versa.

BUT -- I am not sure how it all works, in practice, because  I know that UBC has one consolidated loan application, that also looks up for private UBC donor bursaries at the same time.

Most of the loans are going to masters students, or independent students, due to income qualifications, anyway, where you are most likely to be living in the same province as where you are going to school.

[kayvent]

I had family RESP for a few years and accumulated about $12,000 pretty quickly but I have since decided to stop contributing. Here's why.  Living in Ontario, I keep hearing every month about all the new Ontario tuition grants.  We plan to be well into FI by the time our kids go to college/university and living on a probably $30,000 a year. With a lot of it potentially coming from TFSA.

So our kids will likely receive enough government grants to get a free tuition. Obviously these programs can always be pulled back but then again, they could always even get better. Maybe we will have universal tuition in 2030...

Just something to consider if you plan to be FIRE before your kids reach college/university.

Check out this update last month: https://www.thestar.com/news/queenspark/2017/09/11/one-third-of-ontario-college-and-university-students-receive-free-tuition.html

This is what I somewhat fear. In the last fifteen years in my province, it has gone from “parents’ income matter for student loans”, “parental income is a non-factor”, various tax credits have entered existence and left, parental income now matters a whole lot, and every provincial budget is a new game on finding some random group to screw over. Two years ago, a tax credit was clawed back from people who had went to post-secondary to give a tuition break to present students. Out of the blue. A bunch of people I went to work with “lost” thousands of dollars because of this.

I see the RESP as an insurance policy. Sometimes you pay insurance premiums for decades and it never gets used. Other times the insurance shows it’s worth when you need it.