Parenting & Family

Ask me anything about RESPs

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rvs007 wrote: Thanks Piro21 and CSAgent for the responses. I just checked my TD account and I do have the Family Plan set up (I guess somehow I had the foresight at the time to set up a Family Plan instead of an individual plan). So given this, is the only thing I need to do is just add my younger child to the plan? I assume I'll need to visit a TDCT branch to get this done? And moving forward, if it is indeed a Family Plan, do I need to specify which child the contributions are for, or does it not matter because it's a family plan?
Great job on having the foresight to sign up for a family plan for your kids! :)

To add the younger child, you only need to add the second child to the current Family Plan. Then, in the same form, you can also designate how much percentage of your contributions gets contributed to each child. You can do 50/50, 75/25, or whatever as long as it adds up to 100% in total, or even specific monetary amounts. You will need to sign off on adding the second child, of course - so yes, has to be done in person with your financial institution.

Don't forget, aside from the common monthly pre-authorized contribution, you can also do lump sums, usually done before the end of the year in order to try and maximize the $2500/yearly amount for contributions if you already haven't hit the maximum.
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CSAgent wrote: There are no withholding taxes on EAP payments. If the student is expecting to pay income tax that year, he should set money aside to pay his tax bill the following year.
There's one scenario where withholding taxes will apply to an EAP, but it's extremely rare. If a child is a non-resident of Canada at the time of the EAP withdrawal (not a Canadian resident going to school overseas, an actual non-resident as defined by the CRA) and they take an EAP, it will be subject to non-resident withholding tax. The CESG will also be forfeited as it can only be paid to Canadian residents, so the EAP will be composed of income only.

It really doesn't come up often, and all the ones I've seen have been cases where a Canadian family opened an RESP and then moved permanently to the US without closing it, but it happens sometimes.

(sorry for hijacking your thread)
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Piro21 wrote: There's one scenario where withholding taxes will apply to an EAP, but it's extremely rare. If a child is a non-resident of Canada at the time of the EAP withdrawal (not a Canadian resident going to school overseas, an actual non-resident as defined by the CRA) and they take an EAP, it will be subject to non-resident withholding tax. The CESG will also be forfeited as it can only be paid to Canadian residents, so the EAP will be composed of income only.

It really doesn't come up often, and all the ones I've seen have been cases where a Canadian family opened an RESP and then moved permanently to the US without closing it, but it happens sometimes.

(sorry for hijacking your thread)
Naw, you're not hijacking. I welcome the additional contribution from you! :)

Ah, good to know regarding the non-resident and EAP thing. That's never come up for me as the clients I've dealt with have all been Canadian residents living in Canada.
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CSAgent wrote: Personally, I'd consolidate the two RESP accounts into one Family Plan, whether it be with TD or Scotiabank. The reason being is that it's easier for you to track, and most importantly, by having one unified Family Plan, if one child decides not to attend post-secondary for whatever reason, then their contributions and non-contributions can be transfered directly to the child that wants to attend post-secondary. This way, all that gain is not loss completely because one child doesn't want to attend university/college.
Thanks for your reply. I've tried twice now to move the money from Scotia to TD, and both times a paperwork issue killed it, with no explanation as to why exactly or how to remedy the situation. It has felt more like Scotia not wanting to release the money. I do plan on trying it again. I sure wish banks would develop some useful online tools for tracking the contributions, CESG (and ACESG/CLB), growth, and withdrawals. It's a real black box once the money is in the program it seems.
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Piro21 wrote: There's one scenario where withholding taxes will apply to an EAP, but it's extremely rare. If a child is a non-resident of Canada at the time of the EAP withdrawal (not a Canadian resident going to school overseas, an actual non-resident as defined by the CRA) and they take an EAP, it will be subject to non-resident withholding tax. The CESG will also be forfeited as it can only be paid to Canadian residents, so the EAP will be composed of income only.

It really doesn't come up often, and all the ones I've seen have been cases where a Canadian family opened an RESP and then moved permanently to the US without closing it, but it happens sometimes.

(sorry for hijacking your thread)
CSAgent wrote: Naw, you're not hijacking. I welcome the additional contribution from you! :)

Ah, good to know regarding the non-resident and EAP thing. That's never come up for me as the clients I've dealt with have all been Canadian residents living in Canada.
I've read situations regarding non-residents, etc...

Anyone knows what happens when one RETURNS and becomes resident again, and then withdraw RESP? Is everything then back to normal, besides no 20% grant during the non-resident years?
say, one moves to US/Overseas, becomes non-resident and stops contribution into RESP, but everything still grows inside. One returns 5-10 years later, becomes resident again, can contribute again + 20% CESG?

ha..just to make it even more complicated
Which Credit Cards to sign up? >> Jerry's Mega Thread of Credit Cards Q&A
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jerryhung wrote: say, one moves to US/Overseas, becomes non-resident and stops contribution into RESP, but everything still grows inside. One returns 5-10 years later, becomes resident again, can contribute again + 20% CESG?

ha..just to make it even more complicated
Assuming your kid is still young enough, yes. The RESP stays active while you're gone, you just won't be able to contribute to it.
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deep wrote: Thanks for your reply. I've tried twice now to move the money from Scotia to TD, and both times a paperwork issue killed it, with no explanation as to why exactly or how to remedy the situation. It has felt more like Scotia not wanting to release the money. I do plan on trying it again. I sure wish banks would develop some useful online tools for tracking the contributions, CESG (and ACESG/CLB), growth, and withdrawals. It's a real black box once the money is in the program it seems.
What? They gave you no explanation as to why they won't move YOUR money and somehow you're still with them? If it was me, I'd have an issue with this because written in the prospectus of investments, financial institutions have 10 business days to perform your request to transfer your money either to a bank account (when doing a withdrawal) or to another investment fund at another institution of your choosing. They can't outright refuse or deny you of this request of your own money.

Something is amiss here and I'd raise it to the branch manager as to why your previous request was not done without a suitable explanation.

I know the banks are lazy and can be incompetent whenever a customer wishes to transfer their investments, but they still have to do it regardless of that fact.

At where I work, whenever I have done transfers to our own investment funds for any kind of registered investment from another financial insitution, I do my thorough due diligence after the 10th business day so that my client's money is properly transferred to me to oversee going forward. In saying this, your TD advisor should have also taken the reigns to make sure the money was transferred in due time over from ScotiaBank.

Anyway, I'd keep pressing the issue, and do what you need to do to consolidate your RESP - it makes a lot of monetary sense.
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Feb 7, 2014
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Hi CSAgent,

Some specific questions related to RESP.

1) Is any individual bank better than the others? Meaning can they offer more choices or waive maintenance fees etc.

2) Your original post indicated that with the big banks, this money can only be used to buy mutual funds. So can I not buy individual stocks or ETFs in this account like I can buy in my self RSP account?

3) Any general tips or watch outs ... how can we max out the govt. contribution part? and how to find any additional grants that are available? We are located in BC.

thanks for your response in advance!
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CSAgent wrote: Not a group RESP.

Mars2012 is correct that there are guaranteed returns, and it can be locked in for a set number of years. This would be something that you would talk it over with the advisor as you can also front end load it as well, keeping the funds in the RESP liquid and easier to withdraw before the expected maturity date. Most parents would not mind locking it in for 7 years at a time (called a Deferred Sales Charge or DSC), especially if they start the RESP for the child at age 0, as it's expected that it would be withdrawn by age 18 for college/university.

The higher management fees is to offset the costs of the guaranteed returns and the death benefit option, for example. The fees varies by the funds that you have chosen and are not set throughout all of the available funds provided by the company.
My understanding of segregated funds is that the only guaranteed return is 0%, or in other words over the term of the seg fund contract it's guaranteed not to decrease in value. The value of such a guarantee is questionable though, as it would be difficult to find an overall return of any basic index fund which would show a negative return over any 7 year period. Over the term of a typical RESP (16+ years), I doubt you would find any balanced fund with a negative overall return.

The other big negative in seg funds is the high MER compared to a similar mutual fund or ETF. Over the span of 16 years, MERs can have a huge effect on the end return. Take two funds with contributions of 2500+500 yearly @ 5% annual return for 16 years... one a regular fund with 1% MER and the other a seg fund at 3% MER. After 16 years, the extra 2% in MER will have cost you over $15,000. A lot to pay for guaranteed principal and death benefits you will most likely never even need to use.

Compared to ETFs or something like the TD e-series funds that have MERs in the 0.1 - 0.4% range, the lost return would be even greater. IMO they're a much better choice for an RESP vs a seg fund.
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Flowerp wrote: 1) Is any individual bank better than the others? Meaning can they offer more choices or waive maintenance fees etc.
Do not ever go with any bank that will charge you a yearly fee for an RESP.
2) Your original post indicated that with the big banks, this money can only be used to buy mutual funds. So can I not buy individual stocks or ETFs in this account like I can buy in my self RSP account?
If you go with a bank, then you can only buy what the bank can offer. Banks are not brokerages where you can buy and sell stocks... if you want to do that you need to open an RESP with a broker (I use Questrade for my kids RESP) that you can then buy and sell any stock or ETF you wish. The broker will also coordinate your Canada Savings Grants from the government for each RESP deposit that you make. Some banks are linked to brokerages (i.e. like TD with Waterhouse or Scotia with iTrade), however the bank and the broker are 2 separate entities that offer very different products and services. You need to choose which you want to open the RESP with.

Out of all the banks, the one that seems to be most popular for RESP fund choice is TD and their e-series funds with low MERs.
3) Any general tips or watch outs ... how can we max out the govt. contribution part? and how to find any additional grants that are available? We are located in BC.
Contribute $2500 per year starting as early as possible to get the full $500 grant (or $5000 per year if you've missed some years).

Additional grant money is given based on your family income: http://www.canlearn.ca/eng/savings/a-cesg.shtml

Not sure if any provinces have their own top-up or adder programs.
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rob444 wrote: Not sure if any provinces have their own top-up or adder programs.
Quebec and Alberta have had provincial grants for a while, but Alberta is ending theirs this year. Saskatchewan and BC are bringing out their own programs this year (Sask) and next year (BC), but some companies are a little hesitant to sign on due to Alberta's closing of the ACES. They don't want to go through the trouble and cost of administering a new program if it's only going to be shut down after a couple years.

The new grants are being adopted nonetheless, and the Saskatchewan one should be available soon. Testing and integration into our systems is largely over at my company, and likely at our competitors as well. The BC grants are still in the talk stage.
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What are the positives and negatives of what you're offering vs self directed RESP containing a couch potato portfolio ETF Index Funds rebalanced annually and moving allocations more to fixed income as the child reaches high school?
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I say this as someone who doesn't have a child currently.

Let's assume I have one child and they decide to go to uni. Can I just take out all my contributions leaving them with only the grant and growth (which gets taxed in their hands) and simply give out my contributions to them as needed (or not at all if kid has a part time job and has saved diligently throughout high school like I did). Is there anything stopping me from doing this?

I like eSeries (and currently use them for my RRSP), but the whole grant money being locked away in a GIC bugs me. So questrade seems the next best bet with some ETFs. Any problems with this plan?
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Hi,

I have a family plan for my two kids , one of them is a child with Autism. I fully do not expect the Autistic child to go to any sort of College/University ( yes, he may surprised me but I'm realistic ).

Is the second child able to fully use the entire amount of the fund without any sort of penalty ?

Thanks.
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magmadragon wrote: I say this as someone who doesn't have a child currently.

Let's assume I have one child and they decide to go to uni. Can I just take out all my contributions leaving them with only the grant and growth (which gets taxed in their hands) and simply give out my contributions to them as needed (or not at all if kid has a part time job and has saved diligently throughout high school like I did). Is there anything stopping me from doing this?

I like eSeries (and currently use them for my RRSP), but the whole grant money being locked away in a GIC bugs me. So questrade seems the next best bet with some ETFs. Any problems with this plan?
A) The grants can only be withdrawn when your child is going to school, and up to 6 months after they finish at the latest. The contributions can be withdrawn at any time, even if they're not in school*. It's best to deplete the EAP amount (grants + growth) early and make it up from contributions later on. If they decide school isn't for them after the first year then you've maximized your withdrawal this way because they've taken the grants (which would otherwise be returned if they weren't attending school) and the income (which would be subject to an additional tax upon withdrawal if they weren't attending school) out as intended, leaving you with the contributions that can be withdrawn at any time.

*contributions withdrawn if they're not going to school will result in the grants being returned and the income being held until these conditions are met.

B) The amounts in the RESP will still grow in between withdrawals, so leaving the contributions in there gives much greater (non-debt) leverage to benefit from positive market adjustments. If you withdraw all your contributions and leave only $4,000 in EAP in the account, and the market then rises 10%, you'd be worse off than if you had $20,000 of contributions+EAP in there which would rise 10%. The income portion of the EAP can grow much more if the contributions are left for last.

There is nothing stopping you from doing what you proposed though, so you'll be able to do it if you've weighed your options and decide to go that way.

To illustrate, say you have a policy like this:
Contributions: $25,000
CESG: $5,000
Income: $5,000
and your kid is going to university.

Scenario 1) If you took the contributions out first and none of the EAP you'd be left with $5k in CESG and $5k in income only. Assuming your kid decides to permanently join the workforce and not go back to school after the first year and you want to close the policy, the following would happen:
- The entire $5k of CESG would go back to the government
- You'd have to wait until the 3 conditions I linked to are met (so the kid's 21st birthday at the earliest) and then withdraw the $5k+G of income (G is the amount of growth the policy has amassed over the year), which you'd be hit with an extra tax of 20% on top of regular income tax.

So total money you'd receive from that would be $25000 + [(5000+G) less a bunch of tax]

Scenario 2) Assuming you took all the EAP first, you'd be left with $25,000 in contributions plus a much higher G figure. You'd then be able to withdraw the entire $25k with no deductions because it's a refund of your own contributions, though you still will have to wait until the conditions are met to withdraw G.

So the total money you'd receive if you took the EAP first would be $10000 + 25000 + (G less a bunch of tax).

If your kid stays in school the only thing you'd be missing out on is the higher G figure.
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Piro21 wrote: A) The grants can only be withdrawn when your child is going to school, and up to 6 months after they finish at the latest. The contributions can be withdrawn at any time, even if they're not in school*. It's best to deplete the EAP amount (grants + growth) early and make it up from contributions later on. If they decide school isn't for them after the first year then you've maximized your withdrawal this way because they've taken the grants (which would otherwise be returned if they weren't attending school) and the income (which would be subject to an additional tax upon withdrawal if they weren't attending school) out as intended, leaving you with the contributions that can be withdrawn at any time.

*contributions withdrawn if they're not going to school will result in the grants being returned and the income being held until these conditions are met.

B) The amounts in the RESP will still grow in between withdrawals, so leaving the contributions in there gives much greater (non-debt) leverage to benefit from positive market adjustments. If you withdraw all your contributions and leave only $4,000 in EAP in the account, and the market then rises 10%, you'd be worse off than if you had $20,000 of contributions+EAP in there which would rise 10%. The income portion of the EAP can grow much more if the contributions are left for last.

There is nothing stopping you from doing what you proposed though, so you'll be able to do it if you've weighed your options and decide to go that way.
Yeah good point about the growth. It seems odd that if they don't finish school the government would not ask for the money back though. Bit of a loophole no? Here kid, some (essentially) free money and I get mine back.

Just to be clear, when it comes time for the kid to take the money out I can specify only to touch the grant and growth, and leave the contributions be (or take them out myself)?
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magmadragon wrote: Yeah good point about the growth. It seems odd that if they don't finish school the government would not ask for the money back though. Bit of a loophole no? Here kid, some (essentially) free money and I get mine back.

Just to be clear, when it comes time for the kid to take the money out I can specify only to touch the grant and growth, and leave the contributions be (or take them out myself)?
Yep.

They don't ask for it back because RESPs are to give you a shot at going to school, not to finish school. They know it's not for everyone. As long as you meet the requirements at the time of withdrawal the money is yours (by which I mean the beneficiary).
tkl wrote: Hi,

I have a family plan for my two kids , one of them is a child with Autism. I fully do not expect the Autistic child to go to any sort of College/University ( yes, he may surprised me but I'm realistic ).

Is the second child able to fully use the entire amount of the fund without any sort of penalty ?

Thanks.
You won't receive any penalty from the government, though if you've invested your RESP with a company or in a fund that charges redemption fees you'll probably still have to pay those.

Transfers among siblings are allowed, so all you'll have to watch out for would be making sure the one that receives the transfer doesn't get over $7,200 in CESG. The government keeps an eye on this and will send you a notice if you do, so it's not too much of a worry.
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hi, currently have the family plan, expecting a second kid soon, is there any paper work after the second child is born?
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zzricezz wrote: hi, currently have the family plan, expecting a second kid soon, is there any paper work after the second child is born?
I had to go into the bank to add the second child's name ... and to adjust the distribution of contributions so that it is a 50-50 split.
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May 29, 2009
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I have a Family RESP with an approx. market value of $25,000.
• $3,500 Earning, $3,500 CESG and $18,000 Contributions

[INDENT]The first beneficiary (Jack) has:
• $1000 CESG and $5000 Contributions
The second beneficiary (Jill) has:
• $2500 CESG and $13000 Contributions[/INDENT]

I’d like to withdraw $4000 from EAP for Jack. Can you let me know which of the following withdraw scenarios is correct?
[INDENT](A) Since it is a family plan and the EAP consists of 50% earning and 50% CESG, it will take $2000 from earning and $2000 from CESG.
Since Jack has only $1000 CESG, it will take $1000 CESG from Jill to come-up with $2000 CESG.

(B) Take $1000 from Jack’s CESG and $3000 from earning.[/INDENT]

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