Personal Finance

RESP - which one do you advice

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  • Dec 1st, 2010 12:49 am
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[OP]
Newbie
Mar 28, 2010
19 posts

RESP - which one do you advice

Hello

I am planning to get RESP for my son, but wanted some valuable advice from RFD's. Which institution should i go for?

BTW, i bank with TD and be willing to contribute $0-$100 p.m. I may not contribute anything in a particular month, will depend on the circumstance. So looking for this flexibility as well. Please give suggestions considering below:

1. Contributions flexibity - No contributions to $100
2. No Withdrawals restrictions
3. Internet transfers
4. Broker manage/Self managed

Thanks in advance.
11 replies
Deal Addict
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Sep 26, 2007
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SC
i'm sort of biased with this bank...however they have been good in my experience though i have never used their rrsp or resp products.
they have great customer service and would be probably more than happy to help you.
there is annual fee 50 bucks if your balance is under 25k

http://www.rbcroyalbank.com/products/resp/benefit.html

with regards to your number 2
if you mean to swap between investments then i think this is a good choice for you. however if you mean to just withdraw out of the resp then you will definitely face some problems with any resp.
you may get hit with a whooping tax penalty on the amounts you withdraw.

if you plan on withdrawing it may make more sense not to contribute to a resp.
however if you plan it out properly you can reduce your contributions as to not make any withdrawal but if you contribute 500 a year you i believe you are eligible for CESG (bonus).
Deal Addict
Jan 11, 2007
1228 posts
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Edmonton
any bank/firm is the right way to go and on the right track
PLEASE PLEASE stay away from the group-RESP institutions as far as you possibly can
Deal Addict
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Nov 17, 2009
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Markham
uglyguy wrote:
Nov 22nd, 2010 12:00 pm
any bank/firm is the right way to go and on the right track
PLEASE PLEASE stay away from the group-RESP institutions as far as you possibly can

Just curious any reasons for this? Do they invest the money into mutual funds and your RESP may have the possibilities of being wiped out? Lastly correct me if I am wrong, you can only contribute to RESP if you have a kid?
Deal Addict
Feb 17, 2007
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wasserware wrote:
Nov 22nd, 2010 12:56 pm
Just curious any reasons for this? Do they invest the money into mutual funds and your RESP may have the possibilities of being wiped out? Lastly correct me if I am wrong, you can only contribute to RESP if you have a kid?

1) it's huge fee, you practically contributes for a year or 2 just for satisfying their fee requirement.
2) You can open and contribute to a RESP for anyone; however, the government grant portion is only for kids (under 18).
Newbie
Jun 21, 2005
39 posts
8 upvotes
First you have to decide if you want to have control over the investments. This will eliminate it down to Self-Directed RESP's or Directed RESP's.
But as you said, you wish to have flexibility of contributing to the RESP, you will most likely be looking towards Self-Directed. Directed RESP's usually require a commitment (that you state in the beginning) that is contributed monthly/biweekly/annually depending on the plan.

Self-Directed plans are offered at pretty much every financial institution. Just go in and ask what vehicles they offer. It can vary between GIC's to Bonds to Tbills to Mutual funds.

Directed RESP's work in a way where you contribute and have someone invest for you in a defined manner. Directed RESP's are separated into two major categories: Group and Individual. Common Group RESP's include: CST, Global, Heritage etc
I personally would recommend staying away from Group plans as their enrollment fees are ridiculous and penalties for cancelling the plan are through the roof (As ACC-Major said above). Loss of a year or two of contributions is accurate. One the group plans (not naming any specifically) have about $4000 of enrollment fee for a maximized RESP plan. The setup of how they invest and how you withdraw is also very poor. I'll give an example of how one of these Group plans are set up

A large group of people buy into this plan. The company takes this huge chunk of money and buys the largest bond, gic, or tbill they can get with the best rates. This happens periodically and in the millions/billions. But how withdrawal works is that they split it into 4 chunks (because they assume a 4 year post secondary education). If you have 40,000 in the RESP, they split it into 4 chunks of 10,000. If your child decides he only wants to do a 3 year program, he can only have access to 3 chunks of the plan. The leftover chunk is lost and is spread out to other members of the plan. (Kind of like how annuities work, the dead feed the living....people who don't use their full amount feed the ones that do) The amount of investment increase you are entitled to is also affected by the amount of people withdrawing that same year. More people = more spread out the gains.

That is just my two cents

FYI on Government grants and General RESP's since nobody mentioned it

There are three different government assistances in terms of RESP's
1. Basic Canada Education Savings Grant

This is the general grant that everybody is entitled to. Simply put, the government will add to your contributions an extra 20% on top every year to a maximum of $500 and a lifetime of $7200 per child.

2. Additional Canada Education Savings Grant
and 3. Canada Learning Bond

2 and 3 depend on your family income. I will summarize because I don't want to go into too much detail about it
If your family income is under ~36,000 you can be entitled to 600 maximum per year.
If your family income is between ~36,000 and 72,000 you can be entitled to 550
If your family income is over 72,000 you are entitled to a maximum of 500 (as stated above)...basically just the CESG
(I believe the family income values have changed but they are indexed to the rate of inflation. The specific family income values can be found easily on the government website)
Hope this helped and I hope did not sound long-winded :)
Deal Fanatic
Jul 1, 2007
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It's pretty much a wash as to which bank affiliated mutual fund company to start your RESP with and if you're just starting an RESP at $100/mo you're not looking for a Self Directed RESP with a brokerage.

I'm biased, as I work for TD, but rather than giving a vague long-winded response, since you already bank with TD, here's how it would work with TD:

If your family net income is below $76,000 open a Term RESP (this is the only TD RESP that can get additional CESG/Canada Learning Bond/Provincial grants) and contribute the first $500 here. If your net income is below $37,000 you might also qualify for CLB. http://www.hrsdc.gc.ca/eng/learning/edu ... acts.shtml

Open a mutual fund RESP for the remainder of your contributions (skip the Term RESP entirely if your income is high and you don't live in a province with p-grants). Here you can meet with someone in branch and follow their advice, or ask to have it set up as an e-series RESP and do it yourself. Once set up you can have your $100/mo automatically taken from your account or just do the RESP contributions ad hoc on Easyweb whenever you feel like it.

I agree with previous posters, avoid group RESPs like the plague. The only clear choice out there, for someone starting an RESP, is to start it with your bank/credit union. Once you've built up enough of a balance to invest in stocks, if that's your cup of tea, you can do an in kind transfer to a brokerage account (just ensure that whichever account you transfer it to is able to hold all the different grants).
Member
Aug 5, 2010
237 posts
32 upvotes
I agree with the previous posters, especially Thalo. You might also look into TD e-funds for the mutual fund portion - they are super cheap.

This is the link to the page with the updated income thresholds for additional grants:

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

FYI In 2010, the lowest income threshold is $40,970 and the next one is $81,941
Mike Holman
Money Smarts Blog - Personal Finance and Investing
Canadian Discount Brokerage Comparison - Compare the fees and benefits
The RESP Book - The simple guide to Registered Education Savings Plans for Canadians
Deal Fanatic
Jul 1, 2007
8204 posts
1108 upvotes
Money Smarts Blog wrote:
Nov 29th, 2010 11:18 am
I agree with the previous posters, especially Thalo.

Permission to add quote to my signature? :)
Member
Aug 5, 2010
237 posts
32 upvotes
Thalo wrote:
Nov 29th, 2010 7:47 pm
Permission to add quote to my signature? :)
Haha - sure.

Maybe I can come up with a better one - that one is a bit bland.
Mike Holman
Money Smarts Blog - Personal Finance and Investing
Canadian Discount Brokerage Comparison - Compare the fees and benefits
The RESP Book - The simple guide to Registered Education Savings Plans for Canadians
Deal Addict
User avatar
Sep 10, 2007
3166 posts
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CALGARY
Thalo wrote:
Nov 28th, 2010 1:51 pm
It's pretty much a wash as to which bank affiliated mutual fund company to start your RESP with and if you're just starting an RESP at $100/mo you're not looking for a Self Directed RESP with a brokerage.

I'm biased, as I work for TD, but rather than giving a vague long-winded response, since you already bank with TD, here's how it would work with TD:

If your family net income is below $76,000 open a Term RESP (this is the only TD RESP that can get additional CESG/Canada Learning Bond/Provincial grants) and contribute the first $500 here. If your net income is below $37,000 you might also qualify for CLB. http://www.hrsdc.gc.ca/eng/learning/edu ... acts.shtml

Open a mutual fund RESP for the remainder of your contributions (skip the Term RESP entirely if your income is high and you don't live in a province with p-grants). Here you can meet with someone in branch and follow their advice, or ask to have it set up as an e-series RESP and do it yourself. Once set up you can have your $100/mo automatically taken from your account or just do the RESP contributions ad hoc on Easyweb whenever you feel like it.

I agree with previous posters, avoid group RESPs like the plague. The only clear choice out there, for someone starting an RESP, is to start it with your bank/credit union. Once you've built up enough of a balance to invest in stocks, if that's your cup of tea, you can do an in kind transfer to a brokerage account (just ensure that whichever account you transfer it to is able to hold all the different grants).

One of the best response. Clear and straight forward. I've been looking for something like this for my son but wasn't sure how to establish e-fund and receive AB Grant at the same time.

I'm planning to put $1500 initially and then add $100/month with an option to add some lump sum yearly. I will try to follow the advice and try to open these accounts, but sadly most advisors at TD usually don't have clue.
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Deal Fanatic
Jul 1, 2007
8204 posts
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Mrbj wrote:
Nov 30th, 2010 11:30 am
but sadly most advisors at TD usually don't have clue.

When I was an FA at a branch I was the only one who did where RESPs are concerned... :confused:
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.

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