Personal Finance

Anyone with experience with Knowledge First Financial - RESP??

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ElliottGalt wrote:
Oct 31st, 2016 2:41 am
superfresh89 wrote:
Oct 27th, 2016 9:35 am
ElliottGalt wrote:
Oct 27th, 2016 2:04 am
Max out your TFSA instead and stick it in an index fund. RESP are not that good and are taxed. If your child goes to school you can use the TFSA. Only RESP is everything else is maxed
Lmao.... What?

Are you forgetting the 20% government grant? As well, EAP withdrawals are taxed in the child's name...so no, just no.

RESP is also one of the account types that FIs offer free brokerage accounts for. It's super easy to set up an RESP with some simple ETFs.
Not forgetting it, or its cap($7200 over the lifetime of the child) There is one advantage of RESP and that is the match--assuming you get to keep it.

Your kid goes to college the money is taxed. If they don't go... you still get taxed, you lose the matched money and 20% of the gains.

TFSA has an advantage in every way except the match. No tax, can be used for anything at any time with no penalty. Don't lose gains either. It is better.

Taxes go up--not down and 7k is nothing in the lifetime of a child. Little reward for a lot of risk--and even if everything works out and the go to school it is still taxed which reduces your total investment.
Umm no... You've got it all wrong.

Only EAP withdrawals are taxed in the child's hands. EAP can consist of government grants and the return on your investment.

When you withdraw what you originally put in, it's called a refund of contributions, which is not taxable.

So, if your kid goes to college, you get back what you put in, tax free, and any grant money and growth can be withdrawn as income in the child's hands. Teens don't usually make enough income to get taxed, so it's basically tax free too.

If your kid doesn't go to college, you still get back what you put in, tax free, and the rest you can put towards another child, or donate it.

Ideally, TFSA and RRSPs should already be maxed out anyways. At a minimum, you should have an RESP and contribute the minimum $2500/yr to get the grant.
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The kid is taxed only on earnings and subventions, not the contributions you made. You can also roll your RESP, minus the subventions, into an rrsp if you still have the room available if you're kids doesn't go beyond high school. Seriously, RESP are great and should definitely be used. The only time wehre you might lose out using an resp is if you only have a kid who doesn't go to school, no rrsp room and no other kid to to send the subvention to. Your advice only apply if you know your kid won't go far in school, which is almost impossible to know if you start it at the birth of your child.
I am replying on my phone--please excuse any missed points, it is a cumbersome process, especially with so many people to respond too.

We agree:
Student is taxed on the government "free" money
Student is taxed on any return on investments
You can roll the RESP into your RRSP
--you lose your government "free" money
--you will pay tax on the money earned in the RESP at your marginal rate +an additional 20%
RESP are better than a TFSA IF your child goes to a qualifying school.
However IF they do not, TFSAs are far better.

This is all about choice on how people deal with risk.

Because I don't know the future, I don't know if my child will use the grant, I would rather be in the position of not having the grant money, yet having it all tax free and able to be used in a way that can benefit my child in anyway I want vs being restricted and having a reduced overall return and no grant money if they don't go to school.

If TFSA and RRSP are already maxed--yeah do a RESP
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I replied to the other poster which I believe addresses most of what you said.

I disagree with you 10% return comments, if your going to be that aggressive you have to calculate losses as well. Additionally it would apply to both the RESP and the TFSA

I also hope my child does earn money when going to school--I would want that for them--so they would be taxed.

You are right, it is for education and does not offer the freedom of the TFSA--which is my point.

If your kid goes to school it is a win. If they don't it is a loss vs the TFSA.
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I replied to the other poster which addresses what you wrote. I agree ideally we would have everything maxed but I still maintain that the RESP is only better IF your kid goes to school and is worse if they don't.

I hedge my bets and do TFSA as it give less down side
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ElliottGalt wrote:
Oct 31st, 2016 5:07 pm
The kid is taxed only on earnings and subventions, not the contributions you made. You can also roll your RESP, minus the subventions, into an rrsp if you still have the room available if you're kids doesn't go beyond high school. Seriously, RESP are great and should definitely be used. The only time wehre you might lose out using an resp is if you only have a kid who doesn't go to school, no rrsp room and no other kid to to send the subvention to. Your advice only apply if you know your kid won't go far in school, which is almost impossible to know if you start it at the birth of your child.
I am replying on my phone--please excuse any missed points, it is a cumbersome process, especially with so many people to respond too.

We agree:
Student is taxed on the government "free" money
Student is taxed on any return on investments
You can roll the RESP into your RRSP
--you lose your government "free" money
--you will pay tax on the money earned in the RESP at your marginal rate +an additional 20%
RESP are better than a TFSA IF your child goes to a qualifying school.
However IF they do not, TFSAs are far better.

This is all about choice on how people deal with risk.

Because I don't know the future, I don't know if my child will use the grant, I would rather be in the position of not having the grant money, yet having it all tax free and able to be used in a way that can benefit my child in anyway I want vs being restricted and having a reduced overall return and no grant money if they don't go to school.

If TFSA and RRSP are already maxed--yeah do a RESP
ElliottGalt wrote:
Oct 31st, 2016 5:17 pm
I replied to the other poster which addresses what you wrote. I agree ideally we would have everything maxed but I still maintain that the RESP is only better IF your kid goes to school and is worse if they don't.

I hedge my bets and do TFSA as it give less down side
Sorry, it sounds like you're still not able to understand why an RESP trumps a TFSA for funding a kid's EDUCATION. I don't think any amount of discussion will convince you otherwise, so just agree to disagree with everyone posting in this thread.

I would NEVER give up valuable TFSA room for education while the ideal account for such a purpose is readily available and easy to setup. You keep mentioning "risk", but the biggest risk you take is the possibility of your child not going to school. It's a highly unlikely scenario as they have 35 years from the time of account open to actually go to school. Even if they don't go, it's no big loss and still definitely not worth taking up TFSA room for.
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Sorry, it sounds like you're still not able to understand why an RESP trumps a TFSA for funding a kid's EDUCATION.
Please note my comment
RESP are better than a TFSA IF your child goes to a qualifying school.
My point is that IF they don't--it sucks.

Put the money in the TFSA assuming it is not maxed. If it isn't maxed the room is not valuable as it is empty. If they go to school--you lost out some on what you could have had. If they don't go to school you are much better off.

Clear?
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ElliottGalt wrote:
Oct 31st, 2016 5:37 pm
Sorry, it sounds like you're still not able to understand why an RESP trumps a TFSA for funding a kid's EDUCATION.
Please note my comment
RESP are better than a TFSA IF your child goes to a qualifying school.
My point is that IF they don't--it sucks.

Put the money in the TFSA assuming it is not maxed. If it isn't maxed the room is not valuable as it is empty. If they go to school--you lost out some on what you could have had. If they don't go to school you are much better off.

Clear?
Lol no. Wrong. It doesn't suck if the kid doesn't go to school. The "loss" is negligible. What really sucks is missing out on over $10K of grant money for no reason other than ignorance.
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ElliottGalt wrote:
Oct 31st, 2016 2:29 am
TheClone13 wrote:
Oct 27th, 2016 2:52 pm
ElliottGalt wrote:
Oct 27th, 2016 2:04 am
Max out your TFSA instead and stick it in an index fund. RESP are not that good and are taxed. If your child goes to school you can use the TFSA. Only RESP is everything else is maxed
NO! Just use a bank! RESPs have gotten a bad reputation due to the efforts of these group providers. Open an account at a bank... Get your 20-40% bonus from the government, taxable to the student. Stay away from these group providers!!!
I have no idea why you are talking about group providers and a bank. TFSA account through a broker and put it in a index fund so you can be lazy.

RESP were fine before the TFSA existed, now it sucks. Money is taxed and if taken out you lose 100% of the matched money, 20% of the gains and whatever is left is taxed. Do a TFSA and get no tax, pull out at any time, no fees. Use it for whatever you want--no restrictions
The key point that you keep missing is that the government gives you 20-40% extra. Plus the CLB can add over $2000, plus provincial programs. If its education one is saving for there is NO WHERE that you get a guaranteed return like that.
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What really sucks is missing out on over $10K of grant money for no reason other than ignorance.
With all do respect--it is not over 10k it is less. The maximum is $7200 you can fact check this here: http://www.esdc.gc.ca/en/resp/info.page#h6

Lets take a look at this objectively.
Best RESP Scenario:
  • Over 15 years you invest $36,000 of your own money
  • This gives you the maximum grant of $7200
  • This is an investment of $2500 for 14 years and on the 15th year you invest $1000
  • At no point in time during these 15 years you have ever needed access to this money
  • Your return averaged 5% after all fees (yes even index funds have fees)
  • Your child goes to a qualifying school
  • Your child accesses this money when the market is strong and not when it is weak (on a down cycle)
  • Your investment of $36,000 + Grants $7200 at a 5% annual = $69,172.80
  • This is the best case scenario for RESP--correct?

Worst TFSA Scenario
  • I am applying the same scenario as above. The reason for this, is that the above BEST scenario would be the worst for the TFSA
  • Total contributions at 5% (same frequency without the grant money) = $57,643.30
The difference broken down
  • RESP = $11529.50 more
  • Of which $7,200 is the grant money and $4329.50 is the return made on that grant money over 15 years.
  • Subtract tax, about $84 dollars if your kid did not earn any money that year and took out all the money in a single year

We can conclude that in the BEST CASE scenario for the RESP vs the worst case scenario for the TFSA--the RESP wins. No surprises here, no one would think otherwise.


Alternate possibilities that change the numbers

  • If you ever needed that money over 15 years
  • If your child did not go to (unable or not wanting to) higher education
  • If your child did go to higher education but not at a qualifying institution
  • If your child wants to earn money while at school and it now becomes taxed at their marginal tax rate.



RESP Worse Case (Your child does not do higher education)
  • You lost the grant -$7200
  • You loose 20% of the gains -$865.90
  • You are taxed on the gains at your marginal tax rate (using 37%) -$1281.53
  • Difference between TFSA vs RESP is now $2182.07

So which gives more money in the end?
  • RESP - if your child goes to school +11529.50
  • RESP - if your child does not go to school +2182.07

So why do I vote TFSA?
[*]Dollarwise you seem to be slightly ahead after 15 years--however there are other things lost that are not easy to calculate.
  • Freedom to take out the money and invest in opportunities that arrive during the 15 years timeline (opportunity cost) which could give a greater return.
  • 100% of the money is tax free and does not impact your personal subsidies when old. It does not impact your old age security etc so you can receive full benefit while having income. This is great if your kid goes off the wall--no one plans for this.
  • You can (if you wish) help your child in anyway you want, and WHENEVER you want as you dont need to wait 15 years to access the money.
  • In 15 years, I believe I could find enough opportunities to overcome the 11,500 difference that only exists IF your child does not earn any money and goes to higher education. I certainly can overcome 2,200 dollars which happens in the other situation over the course of 15 years.
  • I believe access to my money at anytime is very valuable--life changes... emergencies happen--this is a long time.
  • I believe the increased TFSA room (that someone here called precious, even though they disagree with my point) in indeed very valuable later in life
Basically I view options as valuable and due to life being more dynamic then I can ever predict, I choose TFSA. I also want my kid to understand the value of money and thus will want him to work his way through school. RESP would be hurt even more due to his tax rate and the small difference of $500 dollars a year is something I am willing to endure for these options and life lessons.

All are free to disagree of course, each make your own decision based on how you value things..

Made edits--net family income restriction was removed
Last edited by ElliottGalt on Nov 1st, 2016 12:17 am, edited 1 time in total.
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Your assumption that you need to have family income of less than 45282 to get the max CESG of 7200 is not correct.
The 45282 threshold applies to the additional CESG, not the basic CESG. Hence family income can be 100k and you can get the maximum 7200 basic CESG.
Last edited by Biff88 on Oct 31st, 2016 11:48 pm, edited 1 time in total.
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There is no upper bound on family income to receive the $7200 grant.

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs ... g-eng.html
Who qualifies for the basic CESG
No matter what your family income is, ESDC pays a basic CESG of 20% of annual contributions you make to all eligible RESPs for a qualifying beneficiary to a maximum CESG of $500 in respect of each beneficiary ($1,000 in CESG if there is unused grant room from a previous year), and a lifetime limit of $7,200.

Also I don't understand how the difference after tax for best case RESP scenario is $84. The kid will virtually pay no tax with basic tax grant ~$11000 and tuition credits. The money can be withdrawn over the course of their post secondary education and not in one go.

Free money is a no brainer. I can't predict 15 yrs down the road but I surely hope my kid makes it through post secondary :)
ElliottGalt wrote:
Oct 31st, 2016 8:29 pm
What really sucks is missing out on over $10K of grant money for no reason other than ignorance.
With all do respect--it is not over 10k it is less. The maximum is $7200 and only if your net family income is less than $45,282 you can fact check this here: http://www.esdc.gc.ca/en/resp/info.page#h6

Lets take a look at this objectively.
Best RESP Scenario:
  • Over 15 years you invest $36,000 of your own money
  • This gives you the maximum grant of $7200
  • This is an investment of $2500 for 14 years and on the 15th year you invest $1000
  • You are able to do this with a net family income LESS than 45,282 or this scenario CANNOT apply
  • At no point in time during these 15 years you have ever needed access to this money
  • Your return averaged 5% after all fees (yes even index funds have fees)
  • Your child goes to a qualifying school
  • Your child accesses this money when the market is strong and not when it is weak (on a down cycle)
  • Your investment of $36,000 + Grants $7200 at a 5% annual = $69,172.80
  • This is the best case scenario for RESP--correct?

Worst TFSA Scenario
  • I am applying the same scenario as above. The reason for this, is that the above BEST scenario would be the worst for the TFSA
  • Total contributions at 5% (same frequency without the grant money) = $57,643.30
The difference broken down
  • RESP = $11529.50 more
  • Of which $7,200 is the grant money and $4329.50 is the return made on that grant money over 15 years.
  • Subtract tax, about $84 dollars if your kid did not earn any money that year

We can conclude that in the BEST CASE scenario for the RESP vs the worst case scenario for the TFSA--the RESP wins. No surprises here, no one would think otherwise.


Alternate possibilities that change the numbers

  • If you ever needed that money over 15 years
  • If your family net income increased at any time above $45,282
  • If your child did not go to (unable or not wanting to) higher education
  • If your child did go to higher education but not at a qualifying institution
  • If your child wants to earn money while at school and it now becomes taxed at their marginal tax rate.



RESP Worse Case (Your child does not do higher education)
  • You lost the grant -$7200
  • You loose 20% of the gains -$865.90
  • You are taxed on the gains at your marginal tax rate (using 37%) -$1281.53
  • Difference between TFSA vs RESP is now $2182.07
Dollarwise you seem to be slightly ahead after 15 years--however there are other things lost that are not easy to calculate.
  • Increased TFSA room due to growth
  • Freedom to take out the money and invest in opportunities that arrive during the 15 years timeline (opportunity cost) which could give a greater return.
  • 100% of the money is tax free and does not impact your personal subsidies when old. It does not impact your old age security etc so you can receive full benefit while having income. This is great if your kid goes off the wall--no one plans for this.
  • You can (if you wish) help your child in anyway you want, and WHENEVER you want as you dont need to wait 15 years to access the money.
  • Any emergency you are able to help yourself, especially if your net family income is below 50k.
So which is better? Obviously if we are just measuring dollars and remove other opportunity investments TFSA has and RESP doesn't... RESP wins over the course of 15 years by 11,500 if they go to school and don't work that year. RESP even wins on the dollar if they don't go to school by $2200.

So why do I vote TFSA?
  • In 15 years, I believe I could find enough opportunities to overcome the 11,500 difference that only exists IF your child does not earn any money and goes to higher education. I certainly can overcome 2,200 dollars which happens in the other situation over the course of 15 years.
  • I believe access to my money at anytime is very valuable--life changes... this is a long time.
  • I believe having the funds when I am old and receiving more benefits pays off this difference within one year.
  • I believe the increased TFSA room (that someone here called precious, even though they disagree with my point) in indeed very valuable later in life
Basically I view options as valuable and due to life being more dynamic then I can ever predict, I choose TFSA. I also want my kid to understand the value of money and thus will want him to work his way through school. RESP would be hurt even more due to his tax rate and the small difference of $500 dollars a year is something I am willing to endure for these options and life lessons.

All are free to disagree of course, each make your own decision based on how you value things..
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Sounds like you aren't thinking about funding an education account but a general rainy day account that you can raid if you need to.Not much of a plan.And you somehow just wave off the 20% government grant on the first $2500 /year.You are worried about a child not going to school but what happens if they do and you "needed" the money and used it.
And taxing a student?Come on they would have a basic personal exemption,tuition credits,text book credits etc.
You are of course under no obligation to setup an account for your kid(s) but don't throw out ideas that the basic grants are income dependent or there are major tax implications in a students income. I'd love to see you beat the 20% match every year I wish you luck.
Child who decides not to continue education after high school

You will not be taxed on the amount you contributed to the RESP, but you will have to pay taxes on the money that you earned in your plan as interest. This money is called "accumulated income." It will be taxed at your regular income tax level, plus an additional 20 percent.
The money that you have put into the RESP is returned to you.
The CESG can be shared with a brother or sister if they have grant room available—otherwise, the grant must be returned to the Government of Canada.
When you close your RESP, you will have to pay tax on the earnings in the RESP. (Although there will be earnings on the CESG, the grant must be returned to the Government of Canada.) You may be able to reduce the taxes you have to pay by transferring your accumulated income to either your or your spouse's Registered Retirement Savings Plan (RRSP). For more information, see the Accumulated Income Payments section of the Canada Revenue Agency's (CRA) website.
Talk to your RESP provider to find out about any conditions that may apply to the plan if your child does not continue his or her education after high school.
For more information, please call the Canada Revenue Agency at 1-800-959-8281 or visit the CRA website."

http://www.esdc.gc.ca/en/resp/info.page#h4
"
Last edited by yyz64 on Nov 1st, 2016 12:15 am, edited 1 time in total.
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There is no upper bound on family income to receive the $7200 grant.

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs ... g-eng.html
Who qualifies for the basic CESG
No matter what your family income is, ESDC pays a basic CESG of 20% of annual contributions you make to all eligible RESPs for a qualifying beneficiary to a maximum CESG of $500 in respect of each beneficiary ($1,000 in CESG if there is unused grant room from a previous year), and a lifetime limit of $7,200.

Also I don't understand how the difference after tax for best case RESP scenario is $84. The kid will virtually pay no tax with basic tax grant ~$11000 and tuition credits. The money can be withdrawn over the course of their post secondary education and not in one go.

Free money is a no brainer. I can't predict 15 yrs down the road but I surely hope my kid makes it through post secondary :)

Great questions!

1. You are right, I mixed up the additional vs basic grants--I will make the edit. Thanks for catching that!
2. $84 tax was if they took it out in one year... i would say this is virtually no tax and you could reduce the $84 dollars by taking it out over two years. My thinking was that an $84 dollar difference is really not that big of a deal if you consider that we are granting the following assumptions in favour of the calculation which... honestly are not likely:
  • Taxes don't go up over the course of 15 years
  • The taxable amount of money will increase if there is any taxable income earned--I would hope this would likely be the case.
Like you though--I sure hope the best for my children and wish I had the funds to max my RRSP, TFSA and RESP--then this entire talk would be moot.
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Hi yyz64

I would disagree with your comment about it not being much of a plan--only because is is a versatile plan. It takes into account road closures and detours. Even though I can still plan on it being used for education, we have space blankets and a candle in the trunk just incase we get a flat in the middle of some winter night. Sure it could be a waste of money if we never use it--if we do use it, it was some of the best money ever spent. That is truly planning. Not only does it take into account the next 15 years but also the next 45 when I think of old age benefits.
  • If you look at the math, I never waved off the 20% government grant on the first 2500--I included it.
  • As for taxing a student--it is true they get some tax breaks that can also be carried forward when they earn money--so this is not really a point. Either they use their credits on the RESP money or their income later. There is a cost involved that needs to be calculated
  • I corrected the income dependent part--thank you for catching that
  • There are major tax implications, some students do work jobs in school. I worked 4 jobs at one time and had full time school--there are many students who don't have their families buying them food and paying their rent. Something to think about and is worth mentioning because it could create tax problems.
The rest is a cut and paste of great information. Again I did give the most favourable situation to the RESP and it does come up ahead dollar wise in both circumstances--I could have changed the situation and easily shown how it rates lower than the TFSA.

I am not pushing an agenda--I wanted to explain why I choose TFSA before RESP--even is an ideal world.
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To each his own, but we have been given two tax advantaged savings plans, the TFSA and RESP, and both should be used to their max.

With regards to a child not continuing qualifying education, you have until the RESP is 36 years old before closing. Prior to this there is plenty of time to adjust RRSP contributions to make sufficient room to perform a transfer. All grant monies will be excluded from the transfer and paid back, but all other contributions and gains are completely transferable. Contribution amounts can be removed tax free. The remainder is the portion that would be transferred to any listed subscriber's RRSP.

I have drawn down all RESP monies, will be closing the RESP in the New Year (once I see final tax slips) and my TSFA is still fully funded for my retirement. That is my ideal world.

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