RESP's

[LTJS2]

Can someone help me understand RESP's for my daughter?

My parents this for me but I had a very difficult time getting the money because I took some on campus courses and some distance depending on the schedule. Because of this they said I was not full time even though the university (a very well known one) said I was. Now, I'm hesitant as I had to jump through so many hoops. But the $500 the government matches sounds appealing.

Can I just sign up for $500 and get the government to match it and not do anything else?

[Zonny]

I'm not sure what this $500 is, maybe it's the learning bond? We didn't qualify for that. Anyhow, if your DD didn't pursue post-secondary education that fits their definition, pretty sure they would ask for it back when the time comes. Just as they'd take back the 20% of your contributions that they kick in. If you were going to stop at the $500 contribution, that's not going to make a whole heck of a lot of difference in your DD's education anyhow.

There's lots of more knowledgeable folks on here than me, so I'm sure your question will get much better answers than this! But maybe you can ask your financial institution for clarification.

[NickyC]

Can someone help me understand RESP's for my daughter?

My parents this for me but I had a very difficult time getting the money because I took some on campus courses and some distance depending on the schedule. Because of this they said I was not full time even though the university (a very well known one) said I was. Now, I'm hesitant as I had to jump through so many hoops. But the $500 the government matches sounds appealing.

Can I just sign up for $500 and get the government to match it and not do anything else?

RESP's are great - attached are links by the government. Both links explain how RESP's work. The canlearn is especially helpful.

http://www.cra-arc.gc.ca/tx/ndvdls/t.../menu-eng.html


http://www.canlearn.ca/eng/saving/resp/index.shtml

There are 3 kinds of RESP's- an individual plan, a family plan and a group RESP. If you are opening this for your child and plan on having more children then I recommend you open the family plan.

Based on the limited info. you gave, I can only guess as the difficulties you had withdrawing from your RESP - I think you may have had an RESP through a provider that had certain restrictions- like USC Education Savings Plan or Heritage or CST (Canadian Scholarship Trust Plan)-these are independents who only sell RESP's. They are straight commission and they ultimately try and sell you the individual plan. The individual plan is based on 4 years schooling. The fees on these plans are quite expensive and if you attempt to withdraw all $ the first year they retain some of the commissions - which is why they try and make you wait it out the 4 years.

While there is nothing necessarily wrong with these plans you need to go into it with your eyes wide open because if you don't-you will regret it. These plans are more for professionals or for people who know that it is likely their kids will go to school for 4 years or longer.

Basically, anywhere else you apply for an RESP, like banks or trust companies or outside investment co's like IG, should only have the government restrictions and of course how you invest the money is just as important.

The $500 is the Canada Learning Bond and you CAN just open an RESP for that reason alone-don't let the institution tell you otherwise.

I personally love RESP's and have them for both my nieces (we have no children) and though I don't contribute a lot what I do will take care of at least their text books & possibly more.

My sister does a monthly plan and again, the grant money you get is well worth it!

The restrictions on RESP aren't that bad at all. Read the links and you'll see what I mean. Whats great about them is there is what's called a "carry forward" provision so if your child is say 3, then you missed 3 years worth of contributions-these are considered a carry forward. Enabling you to contribute extra to get that government grant match.

You may have heard people saying there is no longer a ceiling on what you can contribute a year and that is true - what they don't say, however, is that the government grant - called the CESG (Canada Education Savings Grant) will only match to (usually the first $2000-$3000 -depending on carry forward) for that year.

The Canada Education Savings Grant will match your RESP contribution 20%-hence the term grant match.

So if you contribute say $6000 this year-government CESG will match 20% ($600) of $3000. Where if you had waited to contribute that extra $3000 the following year- you would have received the grant $ of $600 in year one and another $600 that following year. And lets face it, the minimum 20% is pretty darn good and its highly unlikely you would get a 20% return on your investments anywhere else.

If you are talking about $500 (Canada Learning Bond) chances are you won't have to worry about over contributing because your income may be on the low side. The benefit of having a low income is the CESG will pay an additional amount - an extra 10%-20% on your contribution. So instead of getting 20% you could possibly get 30%-40% on the first $500 you contribute every year.

There is a lot of info. to digest and I'm trying to condense it. Hopefully this all makes sense to you.

There is a lifetime maximum of RESP contributions and there is a life time CESG maximum as well.

If your child doesn't go to school you will always get what you've contributed back. You would lose the grant but you can withdraw the interest that grew on the grant and on your contribution. Its called an AIP -accumulated income payment. The government of course will take their 20% withholding taxes and this is considered income and therefore there are tax implications.

Whatever you do, make sure you read the links before making any kind of decision.

Good luck and happy savings.

[Gsxrboy]

I personally hate RESP's with a passion. I have posted my dislikes about the plan on previous posts, but I will do so again to hopefully help others make a more informed decision.

1. RESP's are a great way to save for a child's education, only if your child plans to attend a recognized school that the plan states in the website listed above. The Canada School of Ballet is not one of them, the Stratford Chef School is not one of them, etc.

2. The government contributes up to 20% if you contribute $2500 per year, if you contribute less, then the government will contribute less.

3. If your child decides to not attend a recognized school, you may transfer it to another son or daughter. You may transfer it to an RRSP if you have room etc, this will not trigger a tax payment, but the contributions from the government and the interest will be taken away.

4. If the child does attend a recognized school and they withdraw the money, a tax charge might be triggered depending on the amount taken out. Usually none or very little, but who cares, even a little is too much.

5. A TFSA in trust for the child is way better than an RESP will ever be. The child can withdraw from it freely with no restrictions, and no tax triggers. That is were I have my children's education money saved.

6. If you still want an RESP, go with a bank. Do not go with a some of the "specialized" companies that offer RESP's like Heritage and others. There is numerous charges, fees and major restrictions that the forget to mention to you when you are signing the papers. The agents that offer them make commission on the sale of these products and do not have your child's best interest at heart.

[NickyC]

There you go, LTJS2, 2 differing opinions. One love, one hate.

Just to clarify with GSXRBOY item #2. Its 20% of what you contribute-so its still a minimum of 20% (unless you hit the yearly maximum-which was already discussed in my last post).

Good luck!

Oh, and one more thing.

What you contribute to the RESP you get back without tax consequences (your contribution is considered an after tax contribution). What is taxed is the interest that grew on the grant and on your contribution...

[kris10]

Yes, you DEFINATELY can do this. I was in the exact same position as you, i kinda wanted the gov't grant to be there,if you can then why not? I did not like the feeling of the possibility of not having my money for whatever I wanted if she ended up not using it and only having the option for it to go into my rrsp. Of course i probably could earn a lot of interest on that money if i did contribute more. Honestly if i made more money though i would definately think about contributing more on a regular basis because of the interest i could be earning.

I opened my dd an account just for the gov't money (ok i may have added $20 once). I figured itleast if she goes to college she will have that money + acquired interest and I invest my money when and where I can anyways so if i have enough at the time to give her then that will be great to. But depending on your opinion here, i think that it may be good for my dd to work a little to go to college instead of getting a free ride cuz let's face it that it is not easy and we don't want to raise spoiled children, so if i can't pay for her entire education i wouldn't lose sleep over it.

[ashedfc]

If you ask a open question in a public forum: You are bound to get conflicting answers, as every answer is merely a persons opinion (which may or may not be right for your particular situation)..

Regarding RESP accounts: I would consider, any free money is most welcome; Govt is giving free, "its not wise to Not take the benefit of it".. For any reason, if your child does not go to school, you still get your money back, only Govt takes its portion away..

Regarding the Group plan, I am not in favor of those plans, as you loose control on the selection of investment choice, & there are chances of loosing some of the benefit if your child attends lesser number of years..

In my personal opinion: Open an account with an mutual fund advisor (bank advisor/ independent advisor) individual account (or a family account if there are morr than 1child), & select the fund of investments based on your risk profile.....

Keep in mind: Even if you contribute "0" yes zero dollars; you still qualify for the Canada Learning Bond. Please take advantage of this absolutely free money..

My selection/suggestion may be biased, but the truth is the economy is heading for a serious trouble... as it seems to heading for an inflationary depression, (if there is more than 5yrs left for 18yrs of age) than have a certain portion of precious metals in your child's RESP account ... as a preparation/hedge for the uncertain future.

[LTJS2]

Wow, lots of great information thanks!
I didn't know there was a minimum income for the Canada Learning Bond. I'm assuming this is what the person at the bank was referring too as she kept saying $500 but didn't specify. She didn't ask me my income though. I don't think I qualify.
My baby is only 4 months old, so still time to think about things and look at the pros and cons. We've opened up a TFSA for her already and will see if we need to do anything further.

Again, thanks so much. This is why I love this site. You can get a variety of opinions - this is exactly what I was looking for. Thanks everyone!

[Carlotta]

You need to be 18 years old to have a TFSA, so I'm not sure how you opened an account for your daughter?

I cannot imagine how opening an individual RESP account could possibly be a bad thing???? Where else would you b guaranteed 20% growth on every dollar you contribute up to a maximum of $2500 per year?

If your child decides to drop out of school and therefore does not need the RESP, you get your capital plus any growth on it returned to you. The growth would be taxable to you, but, can be rolled into your own RRSP, so that's a no-brainer. The grant portion and the growth on the grant portion are returned to the government. Again, no big deal.

If your child does use the money for school, the growth portion is taxable in the hands of your child. But since they are students, their tax rate would be non-existent so again, no big deal.

I cannot understand why anyone would even question getting a gift of 20%??? But do NOT, and I repeat, do NOT buy one from the above institutions. Go to a reputable financial advisor and buy one. Invest in a riskier vehicle for the first 10 years or so to maximize growth and then start to move it into a less risky investment so that, when the time the money is needed it is in complete safety.

[violetgypsie]

I would have to disagree with not getting an RESP through a private not for profit RESP organization. Yes there are fees, with either a bank or a private or investment company. The difference is the RESP by private not for profit (such as Heritage mentioned above) is that the fees are charged at the front of the purchase, while banks charge ongoing rates which when added up are usually 10 fold over the course of the RESP.

Shop around. The best RESP provider I found was USC Education Savings Plans and I found them very helpful, informative and the rep gave me a breakdown of their fees vs differnent not for profits, vs banks vs investment co. Don't be pressured into something until you have all of your questions answered. Call and confirm the info given to you. I met with 3 different not for profits and checked with my bank and my investment company.

Also banks / investment co's can invest your child's money in the stock market - including the matching grant money you receive from the government. Private orgs usually go with Provinical and Federal Bonds with very small percentage in stock market type investments.

Taxes are not usually triggered unless the child is working at a very high paying job or working full time while going to school, which most college/uni students do not.

Most accredited school are eligible... some plans may have restrictions as to the length of the program... each RESP provider is different... bank... not for profit... or investment company... they all have different rules.

Get all your facts and then make a decision.

Best regards.

[Gsxrboy]

I completely disagree with investing your money with companies like Heritage. The first 3 to 5 years, there are no money made in investments, you are paying for the salespersons commission. I suggest you contact Heritage about this and confirm what I just posted.

I wish the money that the government gave was a "gift", from my understanding, if someone gives me a gift, I am free to do what ever I want with it. Not so with government grants, you are limited to what you are able to pursue. A good example is a friend of mine graduated from high school, but wants to pursue dance, he has moved to New York to continue the dream, RESP's in this case will have not worked. We can argue all we want about the likely hood of our kids going to a local university or college, but we cannot predict the future of our children, all we can hope for is that they be the best that they can be in what ever they decide to follow.

[violetgypsie]

As I said before, each company / institution offering RESPs have different rules.

Heritage would not be my first choice either, but another not-for-profit was the best choice for me.

Find out what the total fees over the life-time of the plan are - you will be very surprised at the differences. Banks and financial companies are in the business of making money, so don't be fooled because they don't charge the fee up front (called front-loading).

Find out how your deposits and the government grants are invested.

Find out if you can switch between plans (group, family etc), and what the cut off age for the child is before you can do that. Some companies won't let you switch after the child is 12. Some will let you at 16 etc. What does that mean? It means if little Sally decides at age 16 that she wants to go to dance school and she is enrolled in a plan that only allows her to reap the benefits of a 4 year program, then too bad for little Sally. If little Sally was in a plan that allowed her to switch plans at age 16 so she could attend a 1 year or 2 year program, she would receive all of the benefits of her plan. Each company / institution has it's own plans and rules that go with those plans.

Get the facts.


Also some financial institutions will not apply for the Canada Learning Bond, they don't think it's worth their time to apply on your behalf.

Check your facts and then make an informed decision.

[CouponDude]

6. If you still want an RESP, go with a bank. Do not go with a some of the "specialized" companies that offer RESP's like Heritage and others. There is numerous charges, fees and major restrictions that the forget to mention to you when you are signing the papers. The agents that offer them make commission on the sale of these products and do not have your child's best interest at heart.

I totally disagree. http://www.cst.org/ CST has been in this business the longest, for over 50 years. Only recently has banks jumped on the band wagon cause they realized that they can make money too.

Yes there are charges, and the charges are revelead to you in the fine print, 50-100% of those charges are also payed back to you when the program is at maturity.

The "specialized" companies are governed by the Securities Commission and must reveal all the little details to the consumer. While banks are not under securities commission and dont have to tell you squat.

When you invest with a bank, your investment goes into a mutal fund, your principal is not guaranteeed. In the case of CST your "principal" is 100% guaranteed.

Yes agents make comission on a sale, they have to get paid somehow. How do you think a bank employee gets paid when they sign you up for RESP, RRSP or anythign else. Banks make money on the money you deposit too, and your principal is not guaranteed.

If anyone is interested in more info on RESPs from CST, please send me a PM

[Carlotta]

I totally disagree. http://www.cst.org/ CST has been in this business the longest, for over 50 years. Only recently has banks jumped on the band wagon cause they realized that they can make money too.

Yes there are charges, and the charges are revelead to you in the fine print, 50-100% of those charges are also payed back to you when the program is at maturity.

The "specialized" companies are governed by the Securities Commission and must reveal all the little details to the consumer. While banks are not under securities commission and dont have to tell you squat.

When you invest with a bank, your investment goes into a mutal fund, your principal is not guaranteeed. In the case of CST your "principal" is 100% guaranteed.

Yes agents make comission on a sale, they have to get paid somehow. How do you think a bank employee gets paid when they sign you up for RESP, RRSP or anythign else. Banks make money on the money you deposit too, and your principal is not guaranteed.

If anyone is interested in more info on RESPs from CST, please send me a PM

The big question is what happens if your child does not attend a recognized educational institution?
Also, banks and other financial institutions MAY invest your RESP in mutual funds, but can also use segregated funds, GICS, stocks, bonds etc. And as for the principal guarantee with CST, is the grant portion also guaranteed?
As far as the CLB is concerned, I ALWAYS apply for it with my clients. However, since it is income tested, not many of my clients qualify.

[ashedfc]

The "specialized" companies are governed by the Securities Commission and must reveal all the little details to the consumer. While banks are not under securities commission and dont have to tell you squat.

Common, get real!! Blaming the banks doesn't make CST better:
"Banks are fully governed by the securities commission"

The concern in an RESP is not the nominal return (which most companies promise); rather it should be the real return adjusted to inflation, taxes, etc..
Several companies promise a Decent nominal return, but when you calculate the real return, most of them go in "Negative"...