• Last Updated:
  • Jul 31st, 2020 9:03 am
Tags:
[OP]
Newbie
Oct 26, 2018
35 posts
13 upvotes

RESP

We've just started and RESP account for our 2 kids aged 5 and 2 and I started thinking that maybe its not the best way right now.

My thinking is you can catch up on full grant money a long as you contribute the required amounts starting at age 9, so at the moment my wife and I both have ample room in out TFSA so why not save the money inside our TFSAs then we can potentially use the money in an emergency and the growth is 100% tax free and we can still get the maximum grant money if we move it to RESP at age 9.

if we somehow end up looking like we might get close to our TFSA limits we'd start putting directly into the RESP

Does anyone see anything I'm missing in this plan or is it a decent strategy?

Thx
6 replies
Deal Guru
User avatar
Nov 19, 2002
12175 posts
648 upvotes
The "use in an emergency" argument is valid. If that's truly a concern, then your plan makes sense.

From a financial perspective, there is a bit of downside. Keep in mind you have to phase in your RESP contributions to take advantage of the 20% government matching, which only kicks in for 2 year's contributions max at a time - if you try to do a bulk catch up in one shot at age 9, you won't get 20% matching on all of it. Also you're missing out on the compound interest on that 20%, obviously, which could be significant over an extended time period.
Deal Addict
User avatar
Jan 2, 2012
4404 posts
2577 upvotes
Toronto
itsgettinglate23 wrote: We've just started and RESP account for our 2 kids aged 5 and 2 and I started thinking that maybe its not the best way right now.

My thinking is you can catch up on full grant money a long as you contribute the required amounts starting at age 9, so at the moment my wife and I both have ample room in out TFSA so why not save the money inside our TFSAs then we can potentially use the money in an emergency and the growth is 100% tax free and we can still get the maximum grant money if we move it to RESP at age 9.

if we somehow end up looking like we might get close to our TFSA limits we'd start putting directly into the RESP

Does anyone see anything I'm missing in this plan or is it a decent strategy?

Thx
It makes sense, as if you start doubling up the yearly RESP payments (so $5K per kid) at age 9 to get $1K per year CESG, you'll max it out by age 16. The only difference between TFSA and RESP at this point is basically the CESG.

Negatives to your plan are:
- Losing out on the compounding investment return of CESG starting now
- RESPs are meant to be for kids education, not for your emergency fund. Some people may find it harder to control spending the amounts when they are easily accessible in a TFSA.
Sr. Member
Oct 14, 2012
820 posts
558 upvotes
Woodstock
I read "your child can borrow for their education but you can't borrow for your retirement" and it made sense to me. So we topped out our TFSAs and RRSPs first, then as you suggested starting at age 8, paid in double annual contributions for each child to get the max CESG. For us, it worked well. And it doesn't look like they will need to borrow for education either.

There's nothing wrong with a mixed approach either. Some people put some money into each of RESP and TFSA and mortgage without maxing out any of the three. Works for them.
[OP]
Newbie
Oct 26, 2018
35 posts
13 upvotes
ahh yes the interest on the $500 per year, that's what I was missing, thanks. 5k a year is a bit of a stretch right now and having it potentially available is appealing but also missing out on that interest hurts. I'm torn
Deal Guru
Dec 5, 2006
13064 posts
8311 upvotes
Markham
As far as you treat that part as your kids' education money, not later treat it as your vacation money, I don't see any issues:))

I think resp is really to make sure it's for education
Penalty Box
Jun 24, 2015
7224 posts
2258 upvotes
0 downvotes
In all onesty, you don't have to contribute to get the MAX grant if you don't have the money. I am getting a grant every year but its not the max and it does not have to be eihter, if u can afford it then why not
Say NO to the WAR!
PEACE is the answer!

Top