Personal Finance

Is an RESP worth it if we may eventually move out of the country?

  • Last Updated:
  • Aug 17th, 2021 9:20 pm
[OP]
Newbie
Aug 15, 2021
2 posts

Is an RESP worth it if we may eventually move out of the country?

From information I have found online (https://www.moneysense.ca/columns/ask-m ... n-the-u-s/; http://www.moneysmartsblog.com/canadian ... ity-rules/ and https://www.moneysense.ca/save/investin ... cy-canada/), I am aware that the beneficiary of a RESP must be a Canadian resident to receive the RESP grant, and that if the beneficiary leaves Canada (i.e. ceases to be a resident), the RESP grants will be returned to the government.

Moreover, if the child is a non-resident when withdrawals are made, the income and growth over and above the principal are subject to Canadian withholding tax of 15% to 25%, depending on the country of residence (though more likely 25%).

What is unclear to me is whether it still makes sense to open an RESP if we think it is likely we may move to the U.S. a few years down the line. We have already maxed out our TFSAs, so would it be preferable to simply open a regular margin account in lieu of a RESP? How would taxes work with a margin account vis-a-vis a RESP for non-residents?

If it's relevant, our children are U.S. citizens.

Any guidance would be greatly appreciated.
11 replies
Deal Addict
Jun 26, 2019
1993 posts
1723 upvotes
GTA
How old are your kids? If you're going to make the decision in a few years you can likely just delay till then.

Remember, you only need 14.4 years of $2500 to max it out, and you can double up, which means you can cap out in only 7.2years if you need too.

Sure you lose some investment gains and tax deferment, but if its just a matter of a few years before moving, I'd probably just wait and see.
Deal Expert
User avatar
Mar 18, 2005
23245 posts
4684 upvotes
Niagara Falls
lmcjipo wrote: I don't have any kids but anyone considering using a RESP should probably read these as there is currently a class action lawsuit in Quebec regarding them:

https://globalnews.ca/news/7928367/queb ... n-lawsuit/

https://montrealgazette.com/business/lo ... lment-fees
Yes, people should avoid group RESP's like the plague (Covid?). There are other ways though where you can avoid those fees and absolutely insane rules setup by group RESP's.
[OP]
Newbie
Aug 15, 2021
2 posts
If we do move, it likely won’t be for another 5 to 10 years, which might be a long time in terms of opportunity costs if we wait.
Deal Addict
Nov 24, 2004
4529 posts
1093 upvotes
Toronto
lmcjipo wrote: I don't have any kids but anyone considering using a RESP should probably read these as there is currently a class action lawsuit in Quebec regarding them:
RESP =/= group RESP

You can open an RESP for your kid, invest money in it, get the CESG grants, etc. without going anywhere near the group RESPs (which I've heard nothing good about).

Fundamentally the RESP is an investment bucket, like TFSAs and RRSPs are, with its own rules. Our kids' RESP holds a low-cost index ETF. Very simple, easy to keep track of, and no shenanigans to worry about.
Deal Expert
User avatar
Sep 1, 2005
17932 posts
12621 upvotes
Markham
OP should just setup the RESP and start contributing if they have cashflow.

Under the absolute worst case scenario, the monies less grants and less some taxes on the net growth is taxable or can be rolled into an RSP.
We're all bozos on the bus until we find a way to express ourselves...

Failure is always an option...just not the preferred one!
Deal Expert
User avatar
Dec 11, 2005
19819 posts
2579 upvotes
The most annoying thing about RESP is that most banks charge a fee on them, compared to TFSA or RRSP where they don't.

The grants cancel it out, but its still annoying.
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Deal Fanatic
Nov 11, 2008
8712 posts
2367 upvotes
brunes wrote: The most annoying thing about RESP is that most banks charge a fee on them, compared to TFSA or RRSP where they don't.

The grants cancel it out, but its still annoying.
It's nothing more than an account designation.

If you can get a free account on RRSP and TFSA, RESP should be able to get the same thing

TFSA/RESPs have MER fees if you put them in mutual funds or ETFs. Also no different in RESPs
Jr. Member
Aug 2, 2021
180 posts
194 upvotes
JHW wrote: RESP =/= group RESP

You can open an RESP for your kid, invest money in it, get the CESG grants, etc. without going anywhere near the group RESPs (which I've heard nothing good about).

Fundamentally the RESP is an investment bucket, like TFSAs and RRSPs are, with its own rules. Our kids' RESP holds a low-cost index ETF. Very simple, easy to keep track of, and no shenanigans to worry about.
This.

I work in post-secondary and see this every day.

A normal RESP requires a letter of enrolment from the school.

Every group RESP we see requires their own specific form filled in completely, signed and an embossed sealed (not kidding) from the school, along with a timetable, a copy of the program curriculum, payment receipts and a vial of blood (ok j/k). They also have unrealistic deadlines for students to submit requests to withdraw funds, and students are regularly denied access if strict guidelines are not met about GPA, repeated courses, courses outside field of study, online courses (relaxed now).

Stay far far away from Group RESPs.
Deal Addict
Nov 24, 2004
4529 posts
1093 upvotes
Toronto
EPcjay wrote: It's nothing more than an account designation.
Agreed -- it is a "bucket".
TFSA/RESPs have MER fees if you put them in mutual funds or ETFs. Also no different in RESPs
I think it's easier to think of it the opposite way. TFSAs, RRSPs, and RESPs are "buckets". You can put stocks, bonds, mutual funds, or ETFs in them. The "buckets" themselves don't have MERs -- those pertain to the investment, not the "bucket".
Deal Addict
Jul 11, 2009
1055 posts
829 upvotes
Calgary
Despite the bad rep the group rsp plans have - esp CST - I have one with CST that my kids are now drawing from. $100/month for 18 years is now paying them $4500 per year for 4 years, and I get my principle back (almost 18K). the initial $2K in fees goes back to the beneficiary as part of the 4 installments.

The fees that everyone pays by those that left early and didn't get back, goes to the ones remaining - and extra bump in eap payments.
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