The true way of using RESP

Uranium101 wrote: ↑
For say your son is born between 2015-01-01 and 2015-12-31, and he will go to University at age 18. As a result, you have approximately 17-18 years of investment horizon. The life time contribution limit is $50,000 for each child.
...

ksgill wrote: ↑What if you have a daughter? Same recommendation?

Uranium101 wrote: ↑If you have too much money that you have already maxed your TFSA and RRSP, consider RESP. I believe the maturity of RESP is 35 years. Imagine, 35 years of tax free compounding.

For say your son is born between 2015-01-01 and 2015-12-31, and he will go to University at age 18. As a result, you have approximately 17-18 years of investment horizon. The life time contribution limit is $50,000 for each child.
The Canada Educational Savings Grant (CESG) is capped at $7,200 for the life time of the Child, and the distribution is capped at $500/year or 20% of contribution, whichever is less provided that you don’t qualify for Additional Canada Educational Savings Grant (ACESG). So, logically speaking, the optimum amount to contribute per year is $2,500.
Did you know that you can contribute $50,000 on day one? The tax free compounding machine will start from year 1. The earning is significantly higher than the $7,200 CESG.
Let’s do a demonstration:
From year 1 to year 14 you contribute $2,500 each. On year 15, you only put in $1,000. The total CESG you will receive is $7,200 (life time Max). The total amount you put in is $36,000. And we will use $36,000 as basis for comparison.
For say you are able to earn 10% annually from investing in RESP.
After 15 years of investing and annual contribution by you and the CESG, the total amount is around $102,870 in the end. However, if you put in $36,000 at the beginning, the total amount would net $150,380, assuming no CESG was given. The variance is much bigger than the $7,200 CESG.

If you extend the compounding duration to 35 years, the difference will be huge.

popbottle wrote: ↑Remember a few weeks ago when people were fighting about kids moving out or not after age 20 in the mooching thread? And then there's the RESP. I doubt the crew that thinks living at home is so nasty realize how many Canadians actually do help their kids with things.

jerryhung wrote: ↑Hmmm, so a parent with baby in 2015 has to find $$ to put in
say 20K in RRSP
10K in TFSA
then 50K in RESP

That's a lot of money to find but I totally get the idea

jerryhung wrote: ↑Ha ha, I was just providing imaginary numbers. I thought OP was promoting dumping $50K at once to increase future value (Twins = 50K x 2? ouch)

For some, $100K salary should have enough savings. For some, it's not enough
It's just that we now have so many investment channels and priorities may get shuffled or become confusing

popbottle wrote: ↑Remember a few weeks ago when people were fighting about kids moving out or not after age 20 in the mooching thread? And then there's the RESP. I doubt the crew that thinks living at home is so nasty realize how many Canadians actually do help their kids with things.

DDHLeigh wrote: ↑That thread made me laugh. Those people would freak out if they knew what I have in store for my current 4 year old. She won't know til later in life and after she learns the value of money though.

Uranium101 wrote: ↑If you have too much money that you have already maxed your TFSA and RRSP, consider RESP. I believe the maturity of RESP is 35 years. Imagine, 35 years of tax free compounding.

For say your son is born between 2015-01-01 and 2015-12-31, and he will go to University at age 18. As a result, you have approximately 17-18 years of investment horizon. The life time contribution limit is $50,000 for each child.
The Canada Educational Savings Grant (CESG) is capped at $7,200 for the life time of the Child, and the distribution is capped at $500/year or 20% of contribution, whichever is less provided that you don’t qualify for Additional Canada Educational Savings Grant (ACESG). So, logically speaking, the optimum amount to contribute per year is $2,500.
Did you know that you can contribute $50,000 on day one? The tax free compounding machine will start from year 1. The earning is significantly higher than the $7,200 CESG.
Let’s do a demonstration:
From year 1 to year 14 you contribute $2,500 each. On year 15, you only put in $1,000. The total CESG you will receive is $7,200 (life time Max). The total amount you put in is $36,000. And we will use $36,000 as basis for comparison.
For say you are able to earn 10% annually from investing in RESP.
After 15 years of investing and annual contribution by you and the CESG, the total amount is around $102,870 in the end. However, if you put in $36,000 at the beginning, the total amount would net $150,380, assuming no CESG was given. The variance is much bigger than the $7,200 CESG.

If you extend the compounding duration to 35 years, the difference will be huge.

Piro21 wrote: ↑So how do you plan to withdraw this money?

Your kid probably won't be in post-secondary at age 35, so when you withdraw you'll get your contributions back and then have to make an AIP withdrawal, which means you'll be hit with regular income taxes + the additional tax of 20%. You can mitigate some of that by transferring it to an RRSP, but I doubt you'd have the room to do so.

yyz64 wrote: ↑Exactly.You can only roll it into a RESP if you have the contribution room. And if it's not used yes you have to repay the grant money .You can also contribute money and get CESG from a previous year you didn't contribute.So the max contribution can be more than $2500 per year to get the max CESG if you have missing previous years contributions.I can't remember but I think the max CESG in a year is $1000


Sorry OP did you really think you found a great loophole the government didn't see?

Uranium101 wrote: ↑If we do the 50k at one time thingy, I assume we don't get a penny from the CESG. However, we do get $500 for one year, and that is all.

As for withdrawal.
- $50k can be withdrawal tax free upon the maturity date
- $500 CESG will be returned to the government at maturity date
- all others (earnings) will be taxed all at once unless you donate them to fund other people's education

Paying taxes all at once is much better than paying them each year.

yyz64 wrote: ↑In a top tax bracket?Really
And I don't know if you can donate them which would really defeat your whole point wouldn't it?

Why wouldn't you just invest it in a non registered account and pay taxes at 50% of capital gains?Which you could do gradually not all at once.You haven't thought this through.