Personal Finance

RESP/Education Investment

  • Last Updated:
  • Apr 11th, 2017 12:53 pm
Tags:
[OP]
Newbie
Nov 13, 2016
52 posts
8 upvotes

RESP/Education Investment

Hi everyone,
I will be having my first baby in the next couple of months and was looking for ways to invest for post secondary education. I looked into the RESP, and from what I found is that the government will contribute a maximum of $7,200 lifetime, or a maximum of $500 per year. In order to receive the maximum contribution, I will need to invest $2,500 per year or about $210 per month. When funds are withdrawn the student will be liable for income taxes at that time.

My question is - Are there any other investment vehicles that can be used in which the government will contribute, and are possible tax benefits for the contributor and also maximum growth? Or what is the best option available in Ontario?

Current financial situation, I want to begin contributing $100/month. This would be without stretching my budget.

Thanks.
51 replies
Deal Fanatic
User avatar
Nov 19, 2004
7220 posts
993 upvotes
Cambridge, ON
The RESP is good because you get a the immediate (month delay) return since the government contributes. It is the best option.

There are no tax advantages to the contributor. But the gains and government contributions are taxed in the hands of the student later on so the marginal tax rate would be lower or no taxes at all depending on the income of the student at the time.

Even if you can only afford 100 per month now, down the road when you can afford more, you can catch up. The government will contribute based on 5000 per year later when you are able to catch up.
Sr. Member
Oct 11, 2010
907 posts
271 upvotes
Charlottetown
RESP is your best choice, you can't beat 20% guaranteed return (from the gov). I wouldn't worry too much about the tax implications, when a student is ready to withdraw from the RESP it will be at a time where they are going to school and thus will likely have very little to no income + all the tax breaks for school etc, it won't be a huge hit.

DO do and RESP but DON'T do a group RESP. Open an RESP self directed and do a simple etf portfolio under it.

Depending on your income level you may also qualify for additional grants.

$100 a month is fine, you can always catch up later if you want. Even $100 a month + CESG + compounding for 17-18 years equals a damn good start for a kid's education.
Last edited by jfall on Mar 20th, 2017 9:42 am, edited 3 times in total.
Jr. Member
Dec 5, 2016
108 posts
14 upvotes
Sorry to hijack the thread but what documents do you need to open up an RESP (i.e. birth certificate, SIN etc.)?

I understand these take weeks to come in once you register your child. If you contribute a lump sum say $210 x the number of months between the DOB and the opening of the RESP, will the government match in a lump sum as well?
Deal Fanatic
User avatar
Nov 19, 2004
7220 posts
993 upvotes
Cambridge, ON
alucky17 wrote:
Mar 20th, 2017 9:44 am
Sorry to hijack the thread but what documents do you need to open up an RESP (i.e. birth certificate, SIN etc.)?

I understand these take weeks to come in once you register your child. If you contribute a lump sum say $210 x the number of months between the DOB and the opening of the RESP, will the government match in a lump sum as well?
Yes, they will need a SIN for the child. The government portion is an annual amount so it doesn't have to be a monthly contribution on your side.
Jr. Member
Aug 26, 2014
127 posts
53 upvotes
Markham, ON
I would recommend you go to the bank and set up the RESP account. There are two types: individual plan and family plan, my suggestion is to set up a family plan because you may have more than one child down the road, one single monthly contribution will go to the plan for the children. The government will contribute 20% of your monthly $100 contribution, it will show up in about 2-3 weeks after you deposit/transfer money into the RESP.

We set up our monthly contribution about 2 days after the UCB deposit, we use the UCB for the RESP. As for the investment options we don't have the spare time to manage the RESP account on regular intervals (such as buying and trading and managing the ETFs, etc...) so we purchased bank-managed mutual funds, so far the annual Rate of Return has been about 6% as we are on the conservative side.

It's the best thing you can do for your child. This is your first kid and you've looked far ahead, so congratulations!
Deal Fanatic
Jul 1, 2007
7900 posts
753 upvotes
I think the government's pretty quick to send you a SIN for the child nowadays. They don't issue the cards anymore. Birth certificate is the only physical ID for the child that most institutions require.
Money Smarts Blog wrote:
Nov 29th, 2010 11:18 am
I agree with the previous posters, especially Thalo. {And} Thalo's advice is spot on.
Jr. Member
Aug 26, 2014
127 posts
53 upvotes
Markham, ON
alucky17 wrote:
Mar 20th, 2017 9:44 am
Sorry to hijack the thread but what documents do you need to open up an RESP (i.e. birth certificate, SIN etc.)?

I understand these take weeks to come in once you register your child. If you contribute a lump sum say $210 x the number of months between the DOB and the opening of the RESP, will the government match in a lump sum as well?
You're correct. For example, if your child right now is 2 years old. You can back track one previous year, effectively you can contribute $2500 + $2500 at the time you set up the account at the branch. In a few weeks the government will deposit 20% of $5000 as a lump sum into your account. Remember this calculation is based on 1 child, max gov't contribution for the year, you can continue contributing into the plan for the rest of the calendar year but you will not receive the 20% from the government as it has maxed out at $2500.

Both parents and the child/children need the address and SIN # to set it up. The child will have to claim the RESP withdrawal on their taxes later on, so SIN# is mandatory.
Deal Addict
User avatar
Nov 18, 2007
3358 posts
404 upvotes
Valleywood
Do not under any circumstance join a pooled RESP plan such as Heritage, Knowledge First or similar.

Ideally, a self-directed RESP with a discount broker is best, and allows for the greatest flexibility in investments. Every dollar that is contributed, including the CESG is the child's. No fees, no termination rules, no date windows, no value surrender, no nonsense - unlike the pooled plans. (You can Google the horror stories on these pooled plans.)

Your bank and associated discount broker are the best place to start. You will see lots of recommendations for TD e-Series accounts. If you already bank with TD, this is a very good place to start. If you already have a discount broker for RRSP, etc., then use them for a RESP plan.
Sr. Member
User avatar
May 24, 2003
752 posts
115 upvotes
Reference the $5000 contribution to make up for one extra year, I have 3 kids (8,6,and 1) and have setup a family resp but won't start contributing until next year. Can I contribute $15K next year to maximize 2 years of grant for all 3 kids even though it's technically under one family account?

My gut says this should be possible but I can't tell by looking at my account (a mutual fund resp, converted to e-series) because when the rep at the branch set it up she made me open a family account for each kid (3 family accounts). When I questioned her on it, she assured me that it was how it is done and I didn't really know either way, it just seemed odd. After speaking with someone else at the branch, I'm thinking she did it wrong.
Deal Fanatic
User avatar
Nov 19, 2004
7220 posts
993 upvotes
Cambridge, ON
brownstein wrote:
Mar 20th, 2017 6:59 pm
Reference the $5000 contribution to make up for one extra year, I have 3 kids (8,6,and 1) and have setup a family resp but won't start contributing until next year. Can I contribute $15K next year to maximize 2 years of grant for all 3 kids even though it's technically under one family account?

My gut says this should be possible but I can't tell by looking at my account (a mutual fund resp, converted to e-series) because when the rep at the branch set it up she made me open a family account for each kid (3 family accounts). When I questioned her on it, she assured me that it was how it is done and I didn't really know either way, it just seemed odd. After speaking with someone else at the branch, I'm thinking she did it wrong.
Yes, each kid would have a separate family account set up. And yes you can make up contributions for each child.
Jr. Member
Aug 26, 2014
127 posts
53 upvotes
Markham, ON
brownstein wrote:
Mar 20th, 2017 6:59 pm
Reference the $5000 contribution to make up for one extra year, I have 3 kids (8,6,and 1) and have setup a family resp but won't start contributing until next year. Can I contribute $15K next year to maximize 2 years of grant for all 3 kids even though it's technically under one family account?

My gut says this should be possible but I can't tell by looking at my account (a mutual fund resp, converted to e-series) because when the rep at the branch set it up she made me open a family account for each kid (3 family accounts). When I questioned her on it, she assured me that it was how it is done and I didn't really know either way, it just seemed odd. After speaking with someone else at the branch, I'm thinking she did it wrong.
Yes you can put in $15,000 next year and receive $3000 of government grants after a few weeks, ours took about 6 weeks to show up.

I'm confused by the 3 family accounts, you should have only one Family plan, where all 3 kids are under one account number. In this account, the contribution should be allocated as follows: 34%+33%+33% for all 3 kids. May be TD is different, or the rep has it setup as 3 individual plans. Or all of it is wrong for that matter.
Last edited by CCHunter on Mar 20th, 2017 11:02 pm, edited 1 time in total.
Deal Expert
User avatar
Mar 18, 2005
16692 posts
1066 upvotes
Niagara Falls
In your budget, are you factoring in the money from the Government? If not, just put that money or at least the $210 per month into the RESP. That is what we do. That way I don't spend it on dumb things. :). I just never see the money. It comes into my wifes bank account one day and the next is transferred to our RESP account we have with TD.

Do not invest in a some dumb fund. Some of them have extremely strict rules about if you miss a payment they take way all the interest you earned while in the fund, or at least that is how I read it. There are a few threads on RFD that talk about it with people who know a lot more than I do, but I just went with TD as it was suggested multiple times.
Sr. Member
User avatar
May 24, 2003
752 posts
115 upvotes
don242 wrote:
Mar 20th, 2017 7:19 pm
Yes, each kid would have a separate family account set up. And yes you can make up contributions for each child.
why does each kid have their own family account? Shouldn't it be as CCHunter said?

edit: referenced wrong user
Last edited by brownstein on Mar 21st, 2017 9:27 am, edited 1 time in total.
Deal Fanatic
User avatar
Nov 19, 2004
7220 posts
993 upvotes
Cambridge, ON
brownstein wrote:
Mar 21st, 2017 9:27 am
why does each kid have their own family account? Shouldn't it be as Evil Baby said?
The setup varies by institution. Some setup one account and divide contributions and then get separate CESG amounts for each child. TD sets up separate accounts, but they are labeled family plans. Just the mechanism they use to track each child separately for the CESG amounts.

To be honest, a family plan vs individual plans make little difference. Individual plans can be transferred between siblings anyway.

Top