Personal Finance

How are you contributing/investing in your RESP?

  • Last Updated:
  • Apr 29th, 2014 12:32 pm
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Deal Fanatic
Mar 24, 2008
5729 posts
1851 upvotes
Toronto
^^ and then the stock market bounced back while the parent's money was still sitting there eroding with inflation. It's best to create a balanced porfolio based on your risk tolerance and then stick with it through thick and thin. I would suggest some equity exposure even if you are ultra-conservative although 20% return (CESG) on it's own is pretty sweet even if you put everything in GICs.
Member
Mar 31, 2013
396 posts
84 upvotes
Toronto
Assuming the calculation is correct and with 6% growth the 2 options are a wash for total amount in RESP in 18 years, you still are not quite comparing apples to apples. When you do the lump sum, that's all the money already invested. However, when you stagger the RESP efficiently for the grants, the rest of the $50k that you didn't put in yet is still returning the same 6%.

So at the end of the 18 years the RESP would be about the same either way, but with taking advantages of government grants, you actually have some of the original $50k left over for yourself because of the investment returns outside of the RESP.
[OP]
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Apr 11, 2008
5754 posts
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K1Toronto wrote:
Apr 29th, 2014 10:58 am
Assuming the calculation is correct and with 6% growth the 2 options are a wash for total amount in RESP in 18 years, you still are not quite comparing apples to apples. When you do the lump sum, that's all the money already invested. However, when you stagger the RESP efficiently for the grants, the rest of the $50k that you didn't put in yet is still returning the same 6%.

So at the end of the 18 years the RESP would be about the same either way, but with taking advantages of government grants, you actually have some of the original $50k left over for yourself because of the investment returns outside of the RESP.
Actually, the calculation for the $2500/year approach includes an unregistered account accumulating the leftovers.
Deal Addict
Jul 15, 2009
1645 posts
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Archanfel wrote:
Apr 29th, 2014 10:05 am
But in that case, your investment return would be taxed at marginal rate + 20% extra taxes. correct? I think you can transfer it to RRSP, but I think you will need the contribution room and it's only up to $50,000.
The 20% extra tax just almost exactly compensates for the growth on the grants. In other words, they make you pay back the grants, but there's no way to force you to pay back the growth on the grants, so they make you pay an equivalent amount in the form of this tax. To precisely equal the growth on the grants, the extra tax should really be 16.7%, but that's close to 20%.

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