Personal Finance

RESP and Discount Brokerages

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  • Nov 25th, 2015 10:59 am
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Deal Expert
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Nov 15, 2004
20314 posts
4178 upvotes
Toronto
wilyam wrote: Just curious how RESP withdrawals work once a child has entered university/college? Do you need to submit receipts to the CRA, tuition, rent, books etc and then you are reimbursed?
As soon as the beneficiary is enrolled (not accepted, enrolled) in a school you send documentation of this to the RESP promoter along with a signed forms (every company has their own) asking for money and confirming you are still a Canadian resident. You can withdraw all of your contributions right away, but you're limited to $5,000 in EAP (grants + income) in the first 13 weeks. A lot of people take out enough for the first semester as their first withdrawal, then close the policy in late December once the 13 weeks have expired and it's time to pay for the second semester.
Newbie
Nov 19, 2013
25 posts
2 upvotes
ksgill wrote: Why would a sole subsriber run away with the money if it wasn't for divorce? It is just pure fear mongering...
Addiction... Gambling, drug, shopping... I've seen all three (not draining RESP account specifically, but draining all household accounts). From different families where they never expected it (ie: no previous addiction).
Penalty Box
Dec 26, 2013
523 posts
169 upvotes
Ottawa
Piro21 wrote: A lot of people take out enough for the first semester as their first withdrawal, then close the policy in late December once the 13 weeks have expired and it's time to pay for the second semester.
can u explain why this is a strategy? by closing the policy would you not have to pay back all the grants, plus the penalty?
Deal Expert
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Nov 15, 2004
20314 posts
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Toronto
wilyam wrote: can u explain why this is a strategy? by closing the policy would you not have to pay back all the grants, plus the penalty?
You only repay the grants when you're not making a withdrawal for school purposes. When you're making educational withdrawals you can take it all without any issue.
Deal Fanatic
Mar 24, 2008
6247 posts
2708 upvotes
Toronto
tiggercharged wrote: Addiction... Gambling, drug, shopping... I've seen all three (not draining RESP account specifically, but draining all household accounts). From different families where they never expected it (ie: no previous addiction).
I have seen both spouses involved in these activities. Are you suggesting joint subscribership will save people from themselves? Also, if that's the case, they have bigger problems than just an RESP since it is a relatively small amount.
Newbie
Nov 19, 2013
25 posts
2 upvotes
ksgill wrote: I have seen both spouses involved in these activities. Are you suggesting joint subscribership will save people from themselves? Also, if that's the case, they have bigger problems than just an RESP since it is a relatively small amount.
No, of course not. Joint subscribership won't save both spouses from themselves, but it can save one spouse from the other, that's all.
Sr. Member
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Dec 12, 2005
948 posts
113 upvotes
GTA
BetCrooks wrote: @ksgill unfortunately no the 20% penalty is in addition to the CESG grants. For e.g. if no one goes to higher ed,
the subscribers can take back the original contributions with no tax or penalty;
then they have to give back the CESGs;
then there remains the money earned by investing the contributions and the CESGs--that money if withdrawn is taxable income to the subscriber AND there is a surtax of an additional 20% applied to it. So if you're in the 46.5% tax bracket, that money could be taxed at 66.5%.
However, if one of the subscribers has any RRSP contribution room, they can rollover the investment earnings tax-free and surtax-free into the RRSP.

Of course all of our kids will go to some kind of further education, apprenticeships, trades, universities or colleges so we don't really need to worry about the 20% penalty!
Is the 20% calculated as an absolute value like your calculations show, or as a markup to the marginal tax rate? In your example this would be (46.5% x 1.2 = 55.8%). Anyone know for sure? In any case that's a huge penalty! I guess it's partially offset by the fact the govt doesn't try to claim the growth on the grants as well when the grants are clawed back.
Shojin wrote:I like to quote myself.
Deal Guru
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Mar 12, 2005
10766 posts
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Victoria
ksgill wrote: Why would a sole subsriber run away with the money if it wasn't for divorce? It is just pure fear mongering as far as I am concerned... what's stopping one from taking money out of a HELOC and running away? This is hardly a reason to opt for a joint subscriber-ship.
I agree. Having joint subscribers on the RESP doesn't help either. Most DB firms (all of them?) open their accounts as OR (opposed to AND) which means either account hold can withdraw from the account (AND means you need approval from both). There's nothing stopping on of the two subscribers from withdrawing all of the funds.. they can always sort the taxes out later.

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