Canada - Registered Education Savings Plan

[Ottawa]

This post is to share information about the Canada RESP investment options. 
A good and up-to-date write-up can be found here; and should be read if you are not entirely familiar with RESP's:
http://www.moneysense.ca/2012/09/17/the-old-college-try/

I'm interested in whether people have questions, or want to share their strategies.  I agree there are different philosophies about whether or not to assist children with tertiary education (and to what degree).  Personally, the Ottawa family takes the position of maximizing the RESP contributions.  Ottawa Junior will not know about this until well after learning about the financial world and the nexus between work and money.  I expect junior will be working well before (and if) she attends tertiary education at the age of (17); following on from highschool.

Our strategy to maximize the value of compounding interest and the government grants was to front load to the extent that you still receive all government grants (7,200) and maximize the 50,000 allowable total contributions - You could go even more extreme and contribute $16,500 in the first year!:

Year 1   $6,000.00   $500.00 Year 2   $6,000.00   $500.00 Year 3   $6,000.00   $500.00 Year 4   $6,000.00   $500.00 Year 5   $2,500.00   $500.00 Year 6   $2,500.00   $500.00 Year 7   $2,500.00   $500.00 Year 8   $2,500.00   $500.00 Year 9   $2,500.00   $500.00 Year 10   $2,500.00   $500.00 Year 11   $2,500.00   $500.00 Year 12   $2,500.00   $500.00 Year 13   $2,500.00   $500.00 Year 14   $2,500.00   $500.00 Year 15   $1,000.00   $200.00

We invest this money in the TD E-series funds as follows, but first read this post on how to open a TD mutual fund account:
http://www.canadiancapitalist.com/investing-in-td-e-series-funds-for-your-resp/

At this time, I buy according to the following spreadsheet once per year (rebalancing at that time by purchasing only) - you can download the spreadsheet here too (I have 30/30/30/10 - 10 for bond index).  This may change as age 17 grows closer:
http://www.canadiancapitalist.com/sleepy-portfolio-rebalancing-spreadsheet/

[daverobev]

IF sproggins (our upcoming, um, sprog) decides NOT to go on, that RESP can just sit for a GOOD number of years and then be switched into an RRSP, right? And the RRSP tax deduction would happen at that point?

I'm trying to weight up the pros/cons for an RESP vs ITF. Benefactor/trustee stuff is a PITA - RESP might be better, I guess.

The list of amounts vs year is good too, thanks, I'll have to try and remember that. $6k might be tough in the first year though.

[Ottawa]

IF sproggins (our upcoming, um, sprog) decides NOT to go on, that RESP can just sit for a GOOD number of years and then be switched into an RRSP, right? And the RRSP tax deduction would happen at that point?

My understanding is you have up to 35 years from when you open an RESP to use it!  SO, this sprog could choose to go back to school at 30 and use the RESP.  Alternatively, if it is not used for education, I think you can roll it into RRSP if you have room...you pay back the (up to) 7200 CESG grant and also something like a 20% interest penalty...I'd have to check on that. 

There are two different plans as well (family and specified...pros and cons to each):
http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/resp-reee/

Also, RESP can be used for anything related to enrollment in one of the qualifying institutions!...like rent, vehicle (to get to school...but preferably bike!)
Good Resource:
http://canadianfinanceblog.com/the-ins-and-outs-of-resps/
THe RESP can be used for many purposes (i.e. not just university or college)...for example:
http://www.canlearn.ca/eng/main/designated/ldi.shtml

Here also is a "Metaguide":
http://retirehappy.ca/best-of-blogs-lots-to-know-about-resps/

[Ottawa]

I think any sprog will see the wisdom of at least enrolling in one year...also, if either of the parents are tertiary educated...the likelihood of their kids following in the same path is very high. 

Specifically, we intend on the money going to our kid...and would repeat this:

How much can you take out of the RESPs?
The maximum you can take out in the first 13 weeks of schooling is $5000.  Students who need more than $5000 in the first 13 weeks can apply to Human Resources and Skills Development Canada (Email:  cesp-pcee@hrsdc-rhdcc.gc.ca)

Address:  Canada Education Savings Program, Human Resources and Skills Development Canada, 140 Promenade du Portage, Phase IV Mailstop: Bag 4, Gatineau QC K1A 0J9

Following the 13-week period, the beneficiary can get any amount in Educational Assistance Payments.  Remember that Educational Assistance Payments only include the interest and the grant. You can withdraw as much as you want of your own contributions to pay for a child’s education.

Source: http://canadianfinanceblog.com/the-ins-and-outs-of-resps/

I would say: "Consider this a nest egg to start you life...if you don't use it for a full tertiary program..."

[Sara Horton]

How do I calculate the rate of return on a RESP? How do I factor in the grant money? I am basically looking to see how I can evaluate our current RESP?

Background: We’re with a financial advisor and are doing pretty well (I think). However, I’ve started looking at different aspects of our finances in order to become more self aware.  I have a fundamental question that I cannot seems to easily find an answer to. I’m hoping someone here might be able to help.
BTW - thanks for all the great links, some good information.
Here are the details:
We have a family RESP for 2 kids. We have not made any contribution for several years and my goal is to reevaluate our situation and possibly restart our contributions. I do not have all the old statements, however contributions were made for the first several years and no contribution have been made in the last several years.
RESP Registration Date 2003
Contributions in $18,000
CES/ACES Grant Balance $3,600
Total Grant and Contribution $21,600
Value of account on June 28, 2013 $27,101.09

Currently, this is with a Financial advisor. The statements do not come with any rate of return figures, just opening and closing balances. How do I evaluate these investments? Specially considering that it looks inflated given the CESG  - Canada Education Savings Grant money.
Any advice would be appreciated,
Thanks,
Sara - also in Ottawa

[Ottawa]

How do I calculate the rate of return on a RESP? How do I factor in the grant money? I am basically looking to see how I can evaluate our current RESP?

RESP Registration Date 2003
Contributions in $18,000
CES/ACES Grant Balance $3,600
Total Grant and Contribution $21,600
Value of account on June 28, 2013 $27,101.09

You could calculate it two ways...however, if the kids end up drawing down the RESP, then I think the best way to calculate would INCLUDE the CESG grants.  This is basically 'free' money and represents a 20% return immediately on deposit of $2500 per year/child. 
Try using the calculator which is linked to in the following moneysense article for IRR (Internal rate of return)
http://www.moneysense.ca/2012/06/11/how-you-doin/
You will need to know how much YOU contributed in each of the first several years (don't include the CESG contribution). 

For example; our annualized rate of return is 10.25% based on our 'non-idealized' contributions as below (unlike the idealized one I posted):
Year 1: 0 (killing mortgage...no spare cash)
Year 2: 0 (killing mortgage...no spare cash)
Year 3: 18000 (catching up for years 1&2 (CESG = 1000)- and front loading contributions that don't attract the CESG)...also..no more mortgage!!
Year 4: 5000 (catching up on CESG - 1000)
Year 5: 2500 CESG 500
Year 6: 2500 CESG 500

[Gerard]

I think any sprog will see the wisdom of at least enrolling in one year...

Worst case, if the deadline approaches Sprog could limp through 14 weeks of schooling and withdraw all the money at once ($5K max for the first 13 weeks, no limits after that). Wouldn't be the best solution, tax-wise, but...

[Ottawa]

Wouldn't be the best solution, tax-wise, but...

Actually, it wouldn't be bad at all...as the sprog would have a very low tax bracket...possibly you could also manage the extraction...by tax year?

[Financial Threedom]

Generally you can roll your RESP into an RRSP, but there are some hoops to jump through/it's not straight forward, and of course you cant keep the grant money, etc. 

I would say the bigger problem is passing up the $500 per year grant money, rather than worrying what to do with it in the event your child does not use it.

[Financial Threedom]

This post is to share information about the Canada RESP investment options. 
A good and up-to-date write-up can be found here; and should be read if you are not entirely familiar with RESP's:
http://www.moneysense.ca/2012/09/17/the-old-college-try/

I'm interested in whether people have questions, or want to share their strategies.  I agree there are different philosophies about whether or not to assist children with tertiary education (and to what degree).  Personally, the Ottawa family takes the position of maximizing the RESP contributions.  Ottawa Junior will not know about this until well after learning about the financial world and the nexus between work and money.  I expect junior will be working well before (and if) she attends tertiary education at the age of (17); following on from highschool.

Our strategy to maximize the value of compounding interest and the government grants was to front load to the extent that you still receive all government grants (7,200) and maximize the 50,000 allowable total contributions - You could go even more extreme and contribute $16,500 in the first year!:

Year 1   $6,000.00   $500.00 Year 2   $6,000.00   $500.00 Year 3   $6,000.00   $500.00 Year 4   $6,000.00   $500.00 Year 5   $2,500.00   $500.00 Year 6   $2,500.00   $500.00 Year 7   $2,500.00   $500.00 Year 8   $2,500.00   $500.00 Year 9   $2,500.00   $500.00 Year 10   $2,500.00   $500.00 Year 11   $2,500.00   $500.00 Year 12   $2,500.00   $500.00 Year 13   $2,500.00   $500.00 Year 14   $2,500.00   $500.00 Year 15   $1,000.00   $200.00

We invest this money in the TD E-series funds as follows, but first read this post on how to open a TD mutual fund account:
http://www.canadiancapitalist.com/investing-in-td-e-series-funds-for-your-resp/

At this time, I buy according to the following spreadsheet once per year (rebalancing at that time by purchasing only) - you can download the spreadsheet here too (I have 30/30/30/10 - 10 for bond index).  This may change as age 17 grows closer:
http://www.canadiancapitalist.com/sleepy-portfolio-rebalancing-spreadsheet/

Below is a snap of junior's RESP account after 6 years of contributions:

That was some nice market timing.  Looks like you had about a year in then the crash of 2008 hit, and you were able to buy low and get some great deals.  I would suggest for _most_ people to dollar cost average and put equal amounts in each year.

We plan on opening an RESP in the next month or two for our little guy.

[Myrmida]

I just wanted to add that some provinces (hello, Alberta and, I think, Quebec) have additional incentives for contributing to an RESP.  In Alberta, it's an extra $500 in the first year and $100 at ages 8, 11 and 14.  However, not all RESP providers are offering the Alberta part, so you have to look into that.

[Ottawa]

Thought I'd put an update up...
Up almost 2.5% in the last couple months!

[Stasher]

Saskatchewan just added their own top up program to add onto the CESG, it was supposed to be up and running this year. I should check in with my advisor and see if it's time to contribute yet. And like mentioned on here, the worst thing that could happen is it would roll into an RRSP and we loose the grants. My only conflict is that in my tax bracket I need the RRSP tax breaks and it's tough putting that money in the RESP instead.

[Wannabe Mustache]

Ottawa - how old is junior right now?  Is your chart in the original post a plan or is she 15? 

My twin girls are 7 and I've been contributing $100/month each so we only have about $16,800 now.  Through Scotiabank - balanced mutual fund.  I have no idea how much it costs because that is not included in the statement which seems to only show purchases of the funds with my contributions.   

Should I move it to TD and buy e-series funds as outlined in your spreadsheet and/or Canadian Couch Potato?  I read here http://canadiancouchpotato.com/2010/11/05/taking-risk-in-an-resp/ to keep it all in equities until the age of nine and then start to rebalance to add bonds.  I'm not sure yet what my costs to transfer to TD will be but I hope not too much or that TD will pay the costs for my business (don't know as it's not that much money but a woman can dream....). 

Thanks in advance for any response. 

[Prairie Stash]

To properly evaluate there's a few things to consider. What is your current funds MER? Can you switch without fees or charges? These are also answers you should have on any investments.
Also how active do you plan to be? Will you balance the portfolio? It's not that hard, it can be intimidating.

I recommend gathering up info on your mutual fund (statements at the least) going to TD and having a free consultation.

[Ottawa]

Ottawa - how old is junior right now?  Is your chart in the original post a plan or is she 15? 

My twin girls are 7 and I've been contributing $100/month each so we only have about $16,800 now.  Through Scotiabank - balanced mutual fund.  I have no idea how much it costs because that is not included in the statement which seems to only show purchases of the funds with my contributions.   

Should I move it to TD and buy e-series funds as outlined in your spreadsheet and/or Canadian Couch Potato?  I read here http://canadiancouchpotato.com/2010/11/05/taking-risk-in-an-resp/ to keep it all in equities until the age of nine and then start to rebalance to add bonds.  I'm not sure yet what my costs to transfer to TD will be but I hope not too much or that TD will pay the costs for my business (don't know as it's not that much money but a woman can dream....). 

Thanks in advance for any response.

Yes, the original post is the plan to maximize time of money invested while also maximizing the CESG.  Since CESG is a max of $7200, you can front load the RESP with more cash.  I realize that the amount we have in at this time is somewhat excessive and the amount in there will be $150K or so by the time she is 17!  Our daughter is 5 currently!

I was lucky going through my undergrad university as (in addition to working - my parents paid tuition books and rent).  My wife had to incur alot of loans and most people will tell you - they are stressful. 

We have the cash to put in now...so this is our "early inheritance" to our daughter.  Of course, she won't actually know about this - and work ethic will be taught! 

With TDW, if assets are above $25K, there is no annual fee...otherwise it is $50 annually.  It looks like the admin fee for scotia is $25 - but FREE if you have over 15K in assets.  Thus, I see NO reason for you to move from where you are now.  Perhaps just have a look at what the balanced mutual fund contains...and of course, what the fund's MER fee is...

The MER on the Eseries is as follows:
Canadian bond market (TDB909) 0.5%
https://www.tdassetmanagement.com/fundDetails.form?fundId=4817&prodGroupId=1&lang=en&site=TDCT
Canadian equities (TDB900) .33%
https://www.tdassetmanagement.com/fundDetails.form?fundId=3261&prodGroupId=1&lang=en&site=TDCT
International index (TDB911) .51%
https://www.tdassetmanagement.com/fundDetails.form?fundId=4877&prodGroupId=1&lang=en&site=TDCT
US Index (TDB902) 0.35%
https://www.tdassetmanagement.com/fundDetails.form?fundId=3270&prodGroupId=1&lang=en&site=TDCT

The blended MER for our allocation is 0.35% - not a bad drag! 
BTW...I posted some updated info in another thread here: https://forum.mrmoneymustache.com/ask-a-mustachian/canadian-resp/

[Wannabe Mustache]

Thank you! 

I looked up the fund - Scotia Canadian Balanced Fund BNS378- MER online (it is not on my statement nor on my online baking account information).  The MER is 2.03% which I think is pretty high based on what I've been reading on this forum.  The return has been 6.24% since inception in June 1990. 

I can't seem to see the fees anywhere.  The statement does not show me anything!  I don't think it's an iTrade account though.  I don't do any trading.  I think that they asked us our risk tolerance in the beginning and suggested this fund. 

I have an appointment with TD on March 20th so I will see what's involved with opening an account and transferring the funds (I'm also looking at transferring my meagre RRSP (but I have a good pension)). 

How do I do the math to see if it's worth it to switch?  If I'm saving over 1% in fees and the eSeries outperform the Scotiabank fund doesn't it make sense to switch?

[Ottawa]

Thank you! 

I looked up the fund - Scotia Canadian Balanced Fund BNS378- MER online (it is not on my statement nor on my online baking account information).  The MER is 2.03% which I think is pretty high based on what I've been reading on this forum.  The return has been 6.24% since inception in June 1990. 

I can't seem to see the fees anywhere.  The statement does not show me anything!  I don't think it's an iTrade account though.  I don't do any trading.  I think that they asked us our risk tolerance in the beginning and suggested this fund. 

I have an appointment with TD on March 20th so I will see what's involved with opening an account and transferring the funds (I'm also looking at transferring my meagre RRSP (but I have a good pension)). 

How do I do the math to see if it's worth it to switch?  If I'm saving over 1% in fees and the eSeries outperform the Scotiabank fund doesn't it make sense to switch?

Whoah!  that is one hefty MER!!!!  You are getting killed on that.  The BNS378 doesn't look too good.  Have a look at morningstarhttp://www2.morningstar.ca/covers/fund_ca.aspx?culture=en-CA and input BNS378 and then compare to some of the other possible funds...at a 1.6% difference in MER...(compared with the blended E series) you are looking at hundreds of dollars difference per year.  If you are going to move...see if they will cover the transfer out fees...they should.

[Wannabe Mustache]

Thank you again!  What a dummy I've been, just putting my trust in the banks.  I'm starting to understand all this - still lots of learning to do but wow!  I can't believe I'm 43 and just learning.  What a revelation.  Better late than never though.   I still don't feel confident enough to choose funds on my own so for now I will follow CCP and your (Ottawa) suggestions for the eSeries.  When I look at rebalancing next year, hopefully I will know more. 

Any more reading suggestions for learning are appreciated.

[Prairie Stash]

Go to your public library, grab a few books. I don't recommend buying them.Many of them say the same thing, for a novice pick one that doesn't put you to sleep. Most people here I think have read quite a lot.

6.24% isn't impressive. It's below what it should be, roughly by the MER amount...most mutual funds have the same problem, long term they trail an ETF by the MER. One of the best books I read made the distinction that a mutual fund is really just a product that sales people are trying to sell. Like all salespeople they need to sell products, regardless if its the best product for you.

I agree, better late than never (you're not a dummy either). Keep up your motivation and everything will continue to get better every year :)

[JoyBlogette]

We put the $100 per month Child Benefit (free money from Government) into an RESP for Junior.  Now that I am back at work we are also matching that $100 (total $200 per month contribution).  We also get $100 per year from grandparents which puts us at $2500 total per year and gives us the max grant of $500 per year.

[Ottawa]

We put the $100 per month Child Benefit (free money from Government) into an RESP for Junior.  Now that I am back at work we are also matching that $100 (total $200 per month contribution).  We also get $100 per year from grandparents which puts us at $2500 total per year and gives us the max grant of $500 per year.

Well done  So, for 1200 that you personally put in....you get 1800.  Not bad!  :-)

[JoyBlogette]

Well done  So, for 1200 that you personally put in....you get 1800.  Not bad!  :-)

Thanks Ottawa!  I have had some concerns about overcontributing to his RESP in case he decides not to go to University and chooses a trade or college instead (or no post-secondary)... anyone else concerned about this?  I have no RRSP room available for transfer as I have been using my full amount every year.

[Prairie Stash]

Trade schools or colleges qualify for RESP withdrawals. 

The only worry is no school at all, which isn't a real problem once you investigate.  Having a second kid and making it a family plan is the easy option, family plans are better.  Or you just pull it out and have some cash, the amounts you contributed won't be taxed, just the gains.  The government will take back its portion, which I think is fair (it's only for school). From what I read though it always sounds like they only take back $7,200.

The gains on the fed portion get taken out as a 20% special tax on the entire gains. Since you pay 20% tax on the accumulated income it comes out as a wash because the feds give 20% top ups. The returns on the fed part should pay the extra taxes due. I think it's designed to cause no benefit or harm, pretty fair of them.

Essentially its the same as having a private investment account outside the TFSA, RRSP (which you should have eventually), with the upside of getting a windfall for school. You also have until the kids 35 to collapse the plan, you'll be retired when you start collapsing it, taxes will be the same as from your retirement portfolio. I have no concerns at all.

[Ottawa]

Quite a lot of information here: http://www.moneysmartsblog.com/resp-reference/

[JoyBlogette]

Trade schools or colleges qualify for RESP withdrawals. 

I know.  However the cost would be much less than University tuition (that was my only point).

My understanding was that if the RESP is unused you take back your contributions, the government takes back theirs and then all gains were taxed at that extra 20% (including the gains on your money). This seems to penalize you if you contribute extra dollars that are not matched at 20%.

[sleepyguy]

Yup, we're doing the same front loading as it gets the longest compound time.  lil buggers already have $20k and not even 3yrs old  yet :)

[Prairie Stash]

Trade schools or colleges qualify for RESP withdrawals. 

I know.  However the cost would be much less than University tuition (that was my only point).

My understanding was that if the RESP is unused you take back your contributions, the government takes back theirs and then all gains were taxed at that extra 20% (including the gains on your money). This seems to penalize you if you contribute extra dollars that are not matched at 20%.

It's never occurred to me to contribute more than the matching amounts.  I've tentatively planned on needing $50k (obviously I'll reevaluate when the kid is 10 and again at 15), contributing $2,500/year for 14 years is 35K, the feds will give $7K and then I hope it grows some (I expect to end up with $70-80K, depending on returns which I'll roll over onto the next kid).  Combined with the kids summer jobs, high school savings etc. and with them living at home for at least 2 of 4 years they'll easily be debt free. 

Backup plan is playing catch up later on. The nice part is extra money goes into personal savings, so I'll have extra money later. The extra 10K I put into my savings will still be there in 20 years, except no 20% penalty if it's not used.

I agree, you are penalized for going over $2,500/year contributions.  I can't think of any reason to go over that amount.

[Ottawa]

I agree, you are penalized for going over $2,500/year contributions.  I can't think of any reason to go over that amount.

Not if you front load the plan.  CESG is to a max of $7200.  SO, the first 14 years you can get $500 per year by contributing $2500.  In the 15th year you only get $200...which $1000 will attract at the 20% match.

So, $2500x14years + $1000x1year = $36,000.
Lifetime personal contribution is $50,000.  Therefore, you can frontload $14,000 into the plan and not lose out on an CESG matching.  That gives almost 17 years of compounding, sheltered money on that 14K.  That is a lot of interest. 

This is what we effectively did starting in 2010 (we didn't contribute the first two years, but  played catch-up after mortgage was nuked).  Now, our child is 5 and has a balance of $49,934. 

In this way, compound interest has made a killing (and simple effective investments in the TD E-series). 

[Prairie Stash]

I agree, you are penalized for going over $2,500/year contributions.  I can't think of any reason to go over that amount.

Not if you front load the plan.  CESG is to a max of $7200.  SO, the first 14 years you can get $500 per year by contributing $2500.  In the 15th year you only get $200...which $1000 will attract at the 20% match.

So, $2500x14years + $1000x1year = $36,000.
Lifetime personal contribution is $50,000.  Therefore, you can frontload $14,000 into the plan and not lose out on an CESG matching.  That gives almost 17 years of compounding, sheltered money on that 14K.  That is a lot of interest. 

This is what we effectively did starting in 2010 (we didn't contribute the first two years, but  played catch-up after mortgage was nuked).  Now, our child is 5 and has a balance of $49,934. 

In this way, compound interest has made a killing (and simple effective investments in the TD E-series). 

Thanks Ottawa, I appreciate the feedback.  That's a fortune for school, well done.  50K is double what I paid in tuition, seems like a reasonable amount in 13 years with increases. I tried to figure out how much a child really needs, my figure is less than those crazy brochures.  Of course having free room/board is the biggest part, my personal experience was room/board was about 55% of my university cost.

At the current rate of growth are you concerned with over contributing?  Or are you thinking the extra cash will still go to your child and effectively be a kick start for them. I'm assuming you'll be well over 100K, I'm suspecting closer to $150K for education (35-40K/year).

[JoyBlogette]

I agree, you are penalized for going over $2,500/year contributions.  I can't think of any reason to go over that amount.

Not if you front load the plan.  CESG is to a max of $7200.  SO, the first 14 years you can get $500 per year by contributing $2500.  In the 15th year you only get $200...which $1000 will attract at the 20% match.

So, $2500x14years + $1000x1year = $36,000.
Lifetime personal contribution is $50,000.  Therefore, you can frontload $14,000 into the plan and not lose out on an CESG matching.  That gives almost 17 years of compounding, sheltered money on that 14K.  That is a lot of interest. 

This is what we effectively did starting in 2010 (we didn't contribute the first two years, but  played catch-up after mortgage was nuked).  Now, our child is 5 and has a balance of $49,934. 

In this way, compound interest has made a killing (and simple effective investments in the TD E-series).

But you would lose 20% of the "front load" if your kids didn't end up using the RESP and you couldn't tranfer it to an RRSP... right?

[Ottawa]

@PP - yes the amount we're saving for education is likely overkill.  However we were already maxed out in our rrSP and TFSA and finished paying mortgage.  So we decided that we would give our kid the position to not have debt going through whatever schooling they chose.  Call it an upfront inheritance, like I said it probably is over contribution but it can be taken out at the child's tax bracket, which will effectively be quite low compared to ours.  The way I see it the investment gains won't be taxed anywhere near what they would be in our hands. 

@ joy - no we wouldn't lose the frontload, you don't lose the money that you put in.  Under the circumstance where the child does not use their RESP then you would lose the CESG grant and be taxed on any investment gains under your own bracket.  However I think the child would see wisdom in enrolling in at least one semester of study as you can withdrawal the whole amount once you've completed one semester I believe.  Remember they have until age I believe 35 to use the RESP so it doesn't need to wrap up for quite a long time.

[Prairie Stash]

Hi Ottawa, I've been thinking about your reply.  Front loading RESP vs. non-registered accounts (that's where extra cash goes after RRSP, TFSA, RESP, mortgage which you max out).

I stumbled upon a beautiful spreadsheet and article.  I thought you might appreciate it. http://www.moneysmartsblog.com/resp-a-comparison-to-non-registered-accounts/

My takeaway is max out the match and then start a non-registered account, I like the flexibility. Unless the plan is to use the RESP as a way to give money to the kids as part of a tax strategy. The flexibility is in 20 years I can decide if it's needed for education or retirement, I don't have a crystal ball to predict that today.

I laughed at the option of withdrawing during working years, obviously a mustachian will take the money out during retirement, you have 35 years after all. 

[Subversive]

Hi all, we've got 3 kids with a 4th on the way. I haven't clicked on every link in this thread, so I apologize if this info is in one of them, but has anyone found a good reference regarding family RESP plans? There's very little info on them on the Government of Canada website.

Specifically, if I have all 4 kids names attached to a family plan, does that mean I could contribute $10,000 each year and receive $2k in matching grants? Will the gov't know that it's for 4 kids?

Also, since I'm behind on starting one, is there a place to locate/calculate your contribution each year for maximum grant, as I understand you can 'catch up' on missed contributions?

[MorningCoffee]

Hi all, we've got 3 kids with a 4th on the way. I haven't clicked on every link in this thread, so I apologize if this info is in one of them, but has anyone found a good reference regarding family RESP plans? There's very little info on them on the Government of Canada website.

Specifically, if I have all 4 kids names attached to a family plan, does that mean I could contribute $10,000 each year and receive $2k in matching grants? Will the gov't know that it's for 4 kids?

Also, since I'm behind on starting one, is there a place to locate/calculate your contribution each year for maximum grant, as I understand you can 'catch up' on missed contributions?

Our RESP plan is a family plan, which seems to work like an umbrella that covers the 2 kids' "individual" plans. Each child has a separate account #, registered with his SIN. When we make a contribution, we must choose which account (ie which child) we are contributing to. So yes, when we did some catch up earlier, we did 10k total for 2 kids. (you can contribute the equivalent of current year plus one missed year for every child.) We then got the 2k grant money. Depending on their ages, you would be able to do some catch-up. (10k is only maximizing grant money for current year contributions for you since it's 2.5k x 4 kids).

The benefit of the family plan is the money doesn't have to be used for the child it was contributed for, which gives you more flexibility. Each child, though, cannot use more than  the maximum grant money of 7,200.

I hope that makes some sense. My kids are still young, so my understanding of the RESPs is mostly based on reading - we won't need to use it for quite a while :)

[Wannabe Mustache]

Hi again everyone.  Since I last posted here I have done nothing regarding the RESP.  I did open a TD eseries RRSP however.  It was a HUGE pain in the ass but now that I have one account there an RESP should be easier.  However, I'm also considering simply switiching to self-directed at Scotia and using iShares and other index funds offered through Scotiabank.  I see they have one Vanguard index fund. 

I have two questions.

1.  Does anyone know anything about iShares and self-directed RESPs at Scotia and if so, are you happy with your accounts, costs, etc.

2.  I now have just over $20,000 in the family account and the girls turn 8 next month.  I need to up the ante here so I'm going to increase my contribution to $400 a month (from $200) which is probably all I can afford.  This won't be enough to pay all expenses and I'm feeling guilty about that.  How much do you think I will need to cover tuition and housing?  The only calculators I've seen are run by the banks and I'm not sure I trust them. 

Thanks.

[Self-employed-swami]

Hi again everyone.  Since I last posted here I have done nothing regarding the RESP.  I did open a TD eseries RRSP however.  It was a HUGE pain in the ass but now that I have one account there an RESP should be easier.  However, I'm also considering simply switiching to self-directed at Scotia and using iShares and other index funds offered through Scotiabank.  I see they have one Vanguard index fund. 

I have two questions.

1.  Does anyone know anything about iShares and self-directed RESPs at Scotia and if so, are you happy with your accounts, costs, etc.

2.  I now have just over $20,000 in the family account and the girls turn 8 next month.  I need to up the ante here so I'm going to increase my contribution to $400 a month (from $200) which is probably all I can afford.  This won't be enough to pay all expenses and I'm feeling guilty about that.  How much do you think I will need to cover tuition and housing?  The only calculators I've seen are run by the banks and I'm not sure I trust them. 

Thanks.

I don't know anything about #1, but as for #2, you are already saving more for your kids' education than some are saving for their own retirement, so I would try to let go of the guilty feelings.

My opinion is that young adults should shoulder their living expenses, if possible.  Learning to budget and appreciate the consequences of financial actions is an important lesson to learn, and I found that friends who had to work during school tended to have better financial literacy than friends who had everything covered for them.

[newnewman]

Unfortunately most of this information is over my head.

All I know is that about RESPs is:
1) Yes, we are contributing to my daughter's RESP
2) We are depositing our Child Tax Benefit/Universal Child Tax money into her RESP at this point. Although it's not a lot, it has been brainless for us and she is not yet 2 years old and has accumulated close to $4000.00 at this time.

Thanks for all this information. I'm going to try to read through it all and figure out a "Next Steps" for us but at this time we are still ninja chopping down our two lines of credit. Eek.

[rocketpj]

I contributed to our RESP for many years before getting my head around 'investing'.  Imagine my horror when I actually looked at the account and saw that the so-called 'money manager' had it 60% cash and 40% in a high MER mutual fund.  Incompetence, pure and simple.

If you do have and contribute to an RESP, make sure it is being handled properly, or handle it yourself.

[Goldielocks]

My realization this past year (as I have been paying / supporting my husband through school).

Canadian tuition is not all that expensive as we are led to believe as parents.   

It is about $5600 to $6000 per year (two terms) x 4 years plus some activity fees and textbooks.
As canadians, many, many students go to their local school and do not move out for at least 1 -2 years.

How much do you think they will actually need?   How much should they fund for themselves?


Right now, we are planning on each kid having at least $25k saved up.  x 2 kids - $50k...

Wannabe Mustache already has $20k saved and 10 years of saving until age 18, actually 14 years until age 22 (unless you will stop contributing when they start school? seems odd)

So with gov't money...  to get to $50k saved, you  only need another $2500 per year for 10 years, or you could even go as low as $2000 per year if you go until age 22..   Don't forget you will get some nice tuition tax credits when they start school, worth a few more thousand back each year that you could roll over to them too (not included here)

By contributing $400 per month, that makes:  10 years x $5760 (with govt $) + 4 years x $4800 + $20k starting amount = $96,800   
-->Let's assume the investment returns match inflation rates for simplicity and due to short investment horizon...


Does each kid REALLY need you to provide nearly $50k for schooling costs? 
 That pays for all their tuition + books needed plus another $6k per year  Maybe you are planning on grad school for both of them too?

Just sayin....  if you are not maxing out your TFSA and RRSP and other savings, think about it.

[Prairie Stash]

My realization this past year (as I have been paying / supporting my husband through school).

Canadian tuition is not all that expensive as we are led to believe as parents.   

It is about $5600 to $6000 per year (two terms) x 4 years plus some activity fees and textbooks.
As canadians, many, many students go to their local school and do not move out for at least 1 -2 years.

How much do you think they will actually need?   How much should they fund for themselves?


Right now, we are planning on each kid having at least $25k saved up.  x 2 kids - $50k...

Wannabe Mustache already has $20k saved and 10 years of saving until age 18, actually 14 years until age 22 (unless you will stop contributing when they start school? seems odd)

So with gov't money...  to get to $50k saved, you  only need another $2500 per year for 10 years, or you could even go as low as $2000 per year if you go until age 22..   Don't forget you will get some nice tuition tax credits when they start school, worth a few more thousand back each year that you could roll over to them too (not included here)

By contributing $400 per month, that makes:  10 years x $5760 (with govt $) + 4 years x $4800 + $20k starting amount = $96,800   
-->Let's assume the investment returns match inflation rates for simplicity and due to short investment horizon...


Does each kid REALLY need you to provide nearly $50k for schooling costs? 
 That pays for all their tuition + books needed plus another $6k per year  Maybe you are planning on grad school for both of them too?

Just sayin....  if you are not maxing out your TFSA and RRSP and other savings, think about it.

You forgot to add one other income source, the kid. Most students have 4 month summer breaks, they can work. I counted 160 hours*4 months at minimum wage into my estimates.

[Ottawa]

Just saw and read this article today: http://business.financialpost.com/personal-finance/resp-the-tax-free-account-canadian-parents-forgot-about

This is interesting.  I understand the sentiment that some parents want their kids to make it on their own and that the provision of financial assistance is counter to funding an RESP. 

But, do you think that this is just a convenient excuse for some people to feel better about blowing their extra cash on smokes, overpriced cable, truck nutz and other 'essentials'?  Rather than helping their kid get a debt-free footing in life?  I mean, I'm all for my kid working to help pay for their education.  But, it seems like a no brainer to grab any and all money the government is handing out. 

What shocked me the most was that 27.5% of folks eligible to receive the CLB (low income assistance for education) didn't bother to apply.  Just for opening an account you receive a $500 initial grant and $2,000 lifetime.. WITHOUT EVEN MAKING A CONTRIBUTION!

[Goldielocks]

For certain, it is a far better deal than HSA's.

I think that the 20% match money does not exist in the US versions, just tax deferment, so it isn't in the general media advice as much.  I know that with out the 20% match, I would just max out my TFSA's instead.

Not to claim the low income amount is just education and inertia, I guess. Very sad.

[Wannabe Mustache]

I'm back.

I've done nothing since my last post. Finally got back using YNAB because I've been ignoring money. So, I'm still only contributing $200 a month and I haven't moved the money.  I have a hard time making phone calls during business hours and I need to find out if Scotiabank will charge me a fee to move the money. 

The reason I wanted to up the money was to maximize the grant money. Also, if I continue to live where I do, they have no choice but to go away for university so we will be looking at housing costs.

My goal is to switch over to TD eSeries before or during the summer hours.

[K-ice]

I have been maxing this out every year. The only place to get a guaranteed 20% ROI.
The $100 UCCB cheque goes towards this then I top it up.

I do this before my TFSA and RRSP. I wonder if MMM would disagree? ;)

If I had those full too I would probably throw a bit more at the RESP early on like Ottawa plans.

[PharmaStache]

I'm only interested in investing enough for the 20% match ($2500 year + $500 grant).  Already over 7k and DS is 2.  Now that we'll be getting $160/month in UCCB, that almost covers our contributions.  We are using e-series at the moment, 40% bonds/60% equities.

[daverobev]

I'm only interested in investing enough for the 20% match ($2500 year + $500 grant).  Already over 7k and DS is 2.  Now that we'll be getting $160/month in UCCB, that almost covers our contributions.  We are using e-series at the moment, 40% bonds/60% equities.

IMHO it's worth being more stocks until the sprog hits 10-12, then going over to bonds.

I think we'll do stocks 100% til 10 at least, then maybe move 10-15% a year to bonds after.

Just a thought.