New Ontario Student Grant (free tuition for low-mid income) and RESP savings

[elaine amj]

I know I'm super behind the times (didn't pay enough attention when they announced the 2016 budget), but in researching stuff after reading the College Contract thread, I discovered info about the new Ontario Student Grant. http://news.nationalpost.com/news/canada/canadian-politics/is-tuition-really-going-to-be-free-for-some-ontario-students-despite-the-skepticism-heres-how-itll-work

It sounds really good - and made me wonder about timing our FIRE plans to coincide with our kids going to university (my DD will enter University in Fall 2019 and my DS follows the year after). Right now, we make well above the threshold combined, so we would get no grants. If we FIRE strategically, the grant is supposed to make average tuition free for families under $50k in income and heavily subsidized for families under $83k in income.

My big question is how does this affect RESP savings? We currently have about $70k saved up for both kids and planned to contribute another $30k before they turned 18 (to reach the contribution limit). I understand we can withdraw our non-contribution amounts (grant + investment earnings) first as Educational Assistance Payments.  If they have little to no tuition fees, is it still possible to structure it so that we make sure we get the entire $7200 grant per child? I've read that EAPs must be spent on education (I suppose this can include housing and transportation?). On the good side, we didn't go with a group plan so fewer complications.

If there is leftover money, I suppose it can be rolled into my RRSPs? If their tuition ends up being free or heavily subsidized, then I can see there being as much as $50-60k (or more!) leftover which I will happily take back for my own retirement savings. I do not consider this money theirs and have already explained to the kids that we are saving to ensure we can pay for all their tuition fees. Anything over and above mid-level tuition fees, they will have to figure out how to cover for themselves. They also need to be prepared to pay for all their living expenses (we will likely help, but don't want that to be an expectation from them). They're not the kind to be resentful if we "claw" back money from them (and if they are, it's a risk we took when we decided to max out their RESPs with the expectation of clawing any excess savings back).

[Prairie Stash]

You withdraw the money in your childs name, not yours, that's the main tax advantage of an RESP. The grants do not have any affect on RESP withdrawals.

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/resp-reee/pymnts/p-eng.html

My basic strategy is to estimate how much money they earn and then withdraw as much money (tax free) from an RESP plan as possible each year. They then use it for living, books, tuition, food etc., they could even gift it back to parents or pay parents room and board. Your goal is to drain it and get the money back without paying taxes, then divvy it up as appropriate. Extra money (not needed in the current year) should be invested in GIC's for future years use, or put into someone's TFSA for someone's retirement funds (yours, theirs, it doesn't matter).

If you retire then there is very little advantage rolling it into an RRSP, unless you plan on working again one day. RRSP is beneficial when you contribute and igh taxes and withdraw at lower tax rates. If you have a low tax rate then you should put money into a TFSA or hold it in a non-registered account. The non-registered will avoid RRIF rules later on, which diminish your OAS/GIS payments and will hurt when your 72.  In all the hype of RRSP/TFSA some people forget that regular investment accounts still have certain advantages.

[elaine amj]

This was the verbiage that concerned me. Like you suggested, I am probably overthinking it. I did some rough math and if we withdraw at least about $10k/yr per child, that should drain the EAPs (avoid withdrawing the actual RESP contributions in the beginning). I'm sure there's plenty of ways to justify at least $10k/yr in non-tuition educational expenses.

http://www.esdc.gc.ca/en/resp/use.page

Educational Assistance Payments include the interest earned in the RESP as well as any Canada Education Savings Grants, provincial grants and Canada Learning Bonds received. You can use this money to pay for post-secondary school expenses like tuition, books and transportation.

Note: Educational Assistance Payments only include the interest and the grants. You can withdraw as much as you want of your own contributions to pay for the beneficiary's education. RESP withdrawals are considered when assessing need for Canada Student Loans and Grants.

Provide required documentation to support your request

To withdraw money from an RESP, contact your RESP provider. They will ask to see official proof of enrollment before issuing the Educational Assistance Payment. They may also provide you with a list of allowable expenses that the money can be used for, or they may ask for receipts for school purchases to prove the money is being spent on allowable educational expenses.

Because they are responsible for administering the RESP in accordance with the Income Tax Act, your RESP provider determines what is considered a “reasonable” expense (i.e. one that can be paid for with the savings). Any expense that is in accordance with the Act and the terms of the plan would be considered reasonable.

One way to decide if a school expense is reasonable is to ask yourself whether or not this purchase will serve to further the student’s studies.

Note: Your RESP provider may have established guidelines or policies with respect to acceptable educational expenditures. For more information, visit the Canada Revenue Agency website.