Why Aren’t You Using an RESP?
Posted by Gail | Filed under Kids & Money, Saving
Back when my children were born – so about 15 years ago – the RESP wasn’t the RESP we have today and I wasn’t convinced it was the best deal going. But over time, the product has improved, the legislation has been made more user-friendly, and the reasons to use it have become crystal clear.
There are still plenty of people in Canada who aren’t using an RESP to save for their children’s future education. Only about 35% of eligible kids receive the Canada Education Savings Grant. That’s the money the Feds GIVE you to put money away for your kids. Really? The Feds want to GIVE you money and you don’t want to take it? Whazzup with that?
Don’t have any money to save, you say? Hmmm. The Canada Learning Bond provides $500 for low-income families to establish a RESP account and allows for an annual contribution of $100 but only has an 8% participation rate. Whazzup with THAT?
If you haven’t been contributing to an RESP for your kids, it’s not too late to catch up on the whopping $7,200 CESG you may have been missing out on. Starting in 1998, the CESG accumulates every year for a child until he turns 17.
While there is no maximum that you can put into an RESP each year, there is a $50,000 lifetime limit. So you can catch up for years in which you did not make a contribution. The basic grant room is $400 per year from 1998 to 2006 and $500 from 2007. The maximum a child can receive in a calendar year is $1,000 provided grant room is available, so don’t be tempted to catch up too much at once. Each year you can catch up for roughly one year of missed contributions.
Let’s say you made no RESP contributions for Molly Magoo who was born in 2000. The total CESG room Molly would have accumulated would be $3,800 ($400 for the years 2000 to 2006 and $500 for 2007 and 2008). If you set up an RESP for Molly this year, you can contribute up to $5,000 and grab a grant of $1,000. Yup. You put in 5 and the Feds give you 1… that’s an automatic 20% return on your money, before it’s even invested.
You have to be careful where you get your information on RESPs. When I looked at the CIBC Wood Gundy site on November 19, 2008, the info on the site was incorrect. It hadn’t been updated since the last set of changes. And when I went to the Morningstar site, again, old info. Whazzup with that? How does any financial institution justify having incorrect information anywhere on it’s website where it might be picked up by a search engine? Shame!
The best place to go for info is straight to The Horse’s Mouth.
One of the questions I get quite often is “How much should I save?” That’s a tough thing to answer since it depends in large part on how much you can afford. Aim for the maximum amount of CESG for which your kids qualify. If you can afford to put away more, do it. Post-secondary education won’t be getting cheaper any time soon.
A note of caution. I am not of fan of Group RESPs – typically called Scholarship Trusts – which have about 30% of the market. A study prepared for the federal government on RESPs found that group scholarship trusts have a number of drawbacks including the fact that:
- You must pay an enrolment fee and make contributions according to a preset schedule.
- If you close a Scholarship Trust RESP before maturity, you forfeit the enrolment fee plus any investment gains and government grant money. So if you can’t keep up with the preset contribution schedule, you lose. And, no, you can’t simply transfer the plan. They won’t let you.
- Some scholarship trust plans deny payments to students who are entitled to these benefits under government rules because some scholarship trusts don’t recognize all courses of study. If your child chooses something outside the plan’s parameters, they won’t be able to use the money in the plan.
- If the group scholarship plan is cancelled for any reason, you get your contributions back, net of fees and without the investment income. The grant money is also repaid to the government, and cannot be earned back later if new contributions are made for the same beneficiary.
- Scholarship trusts have high fees. The report notes that in 2006, 20% of gross contributions went towards fees.
If you haven’t opened up an RESP for your wee one yet, today’s the day. It doesn’t have to be a ton of money. Can you manage $100 a month? $50? $25? Just get started. And the next time The Grandparents want to know what to get Molly McGoo for her birthday, a toy and a small contribution to her RESP will keep her happy on her special day and give her options in the future.
January 12, 2009 at 7:24 am
Great post, Gail! When my kids were born (2001 and 2004), one of the first things I did was get them a SIN number, and start an RESP. Every month, I put the money I get from the government for child benefits and put it into an RESP. For us, that works out to just over $200 a month. I figure that’s money for the girls anyway, should use it for their benefit!
January 12, 2009 at 7:52 am
Gail, I do regret jumping into a group RESP plan. Any suggestions if I might want to do something else? I’ve been contributing for 3 years.
Can I have more than 1 plan? What if I reduce the contribution to the minimum and open a 2nd plan thru an FI?
January 12, 2009 at 8:09 am
We have been debating on opening a RESP…and after reading this I am opening one up for both. I have two daughters one born in 1994 and the other in 1998 and I thought it was too late for the oldest. I am glad I read todays post and the comments!! Super great job as always…
January 12, 2009 at 8:25 am
Hi Gail!
The letter ‘g’ (what irony!) was left out of the RESP link:
http://www.hrsdc.gc.ca/eng/learning/education_savings/publicsection/CESP/resp.shtml
January 12, 2009 at 8:47 am
Shortly after I had my first daughter (2005) we were visited by our friendly neighbourhood Group RESP rep. We signed up and an hour after she left we finished reading the fine print and promptly called and cancelled. We decided on RESP instead. I feel like we dodged a bullet.
My parents had the group plans for all of us. Since I was the only one who went on to post-secondary for the 4+ years it only worked well for me. For the rest of them they got just their contributions. I was there the day they discovered this and I felt so bad for them when they realized all the interest they could have made over 18 years in a mutual fund.
January 12, 2009 at 9:01 am
Great post… wish i invested in a RESP years ago- now the kids are older and in their 2nd year and it’s brutal the financial end of it. By the way, the link (The horse’s mouth) in the post doesn’t work… (well it didn’t for me).
January 12, 2009 at 9:14 am
Melanie,
From what I’ve read you can have more than one plan, but the overall lifetime contribution and 20% contribution matches apply. In other words, you could take your 20% match ($500 on $2500) and spread it across 5 plans, but you can’t get a 20% match on 5 plans.
I have more than one resp account for my son, one I opened in 2007 with a FI and one I just opened last year at TD (efunds). All I did was suspend payments to the one opened in 2007 (which I opened at $2500).
Read the fine print on your group trust account, you may be able to reduce your monthly payments without triggering some kind of poison pill. Alternatively some people have chosen just to bite the bullet and cancel the plan and take the fee penalty if they’re not in too deep but that’s a decision only you can make. Most people who did this said it was a choice of making sure they’re not sending good money after bad.
You should visit canadiancapitalist and search under “heritage resp” and “resp” to see comments.
January 12, 2009 at 9:22 am
I need some help, dh took the ford buyout and will have to buy rrsp’s. What kind should he buy, but he wants to be able to pull them out so nothing long term, we also have 4 kids.
January 12, 2009 at 9:46 am
My son was born on 2008-Jan, and I have opened his RESP right after I got his SIN (that was back in February 08). We get from the Feds the $100 Universal Child Tax Benefit monthly, and about $43 from the Child Tax Benefit. I have set up an automatic direct deposit from Canada Revenue agency of the UCTB and CTB directly into my son’s savings account. The $100 are then automatically transferred into his RESP and the $43 are kept on his own savings account. We also use his savings account for any other money-gift he gets. This is savings’ for your kid by using the Fed’s money and keeping it separate.
January 12, 2009 at 10:15 am
just wondering…is an resp something you can add to when it’s convenient, or do you have to set up a payment plan. And if you can only make an initial contribution is it still worth while. Money’s tight right now but would love to get a head start (20mos and 6 mos) so there is no urgent rush at the moment. And if they for whatever reason decide not to go to university or equivalent what happens to the $$?…
January 12, 2009 at 10:16 am
…oh, and it’s been a while so this may sound like a stupid question but how do you get a SIN???
January 12, 2009 at 10:31 am
We have set it up so we contribute when we can – birthdays, etc. Most times they want you to have a minimum of $500 to begin with. As for not being able to afford it….Gail – the Canada Learning Bond doesn’t take into account how many kids you have. It just looks at family income. We have 4 kids.
Another thing is we don’t plan on paying for our children’s education. I paid for mine and still don’t use it! We will help them any way we can. We are not willing to sacrifice our retirement savings to pay for their education. With our savings those are the choices we have – save for retirement or save for our kids’ education. We can borrow for their education but we can’t borrow for our retirement….I think I read that from you Gail!
@Michelle – any Service Canada centre can help you get a SIN – check online for the one nearest you. If your kids decide not to go to post secondary education then the money and interest come back to you and the Grant money goes back to the government. You can then put that money into an RRSP for yourself to avoid paying income tax on it. If you set up a family plan the money goes to the next sibling.
January 12, 2009 at 10:38 am
I just checked and the CLB is only for kids born after Dec.31 2003 – that excludes 3 of our children. The net family income has to be under $37,885 too. It is a great program for those that qualify.
January 12, 2009 at 11:08 am
Hi Gail,
Since you made mention of The Wealthy Barber a few times, I assume you have read it. Now granted, it was written a while back ago, but he suggests that RESPs are a waste, and you’re better off putting the money into a well diversified mutual fun. If I’m not mistaken, the rationale was that if a person’s child does not go on further with his/her education, you will not be able to receive the interest that accumulated over the years, but at least with a normal mutual fund, the interest will always be there regardless of the child’s decision. Does this make sense, or does it still hold true?
January 12, 2009 at 11:11 am
@ Kathy — you really do not want to pull money out of an RRSP or an RESP, you’ll pay whopping taxes and fees unless you’re approaching retirement. It’s not meant to be readily available. Max out your TFSA’s instead and then think about your objectives more before acting. Ask lots of questions. Make sure you’re not confusing RRSP with RESP too.
@ Michelle – with a RESP you have lots of options, you can start now or even in a few years make up for missed payments. My experience has been that to just open up an account and make an initial payment is worthwhile just to have done it. TD eFunds requires a minimum opening investment of $100 and then you can have monthly autowithdrawals of as little as $25 / month. Best I’ve seen. My advice – do lots of research, ask lots of questions, and remember that you have an 18 year time frame to work with so don’t be reckless but don’t be too concerned if there’s some volatility. Agree with Gail — stay away from group plans.
January 12, 2009 at 11:17 am
…thanks Geoff, do you know if there is an age restriction on tfsa’s…can I open one of them each for the kids??
January 12, 2009 at 11:21 am
we got a SIN number for our son and wanted to open an RESP account for him. our credit union told us that the minimum deposit was $500. their advice was to set up a savings account for him and when that amount reaches $500 to then have it transferred into an RESP. our son gets monies for christmas and birthdays and we have been putting them into GICs that will mature at the same time and then will put them into an RESP.
was our credit union wrong? i’m also worried what we would do if our son does not go into post-secondary education of any kind….
January 12, 2009 at 11:37 am
TFSA owner must be 18 or older and a canadian resident. Sorry Michelle…
@ Dinah – doens’t sound like your credit union was wrong, they just have different rules on minimum contribution for their RESP plans. My understanding is that if your child doesn’t go to post-secondary, that you have to give back any contributions the government made to your resp but the rest gets rolled into your rrsp if you have room. Keep in mind Dinah that it seems unlikely you’re son would not go into post-secondary education “of any kind”. The government has a broad definition of post-secondary education — including college, trade schools (ie to become an electrician) and more. Keep in mind that group scholarship trusts do not take such a broad approach which is another reason why I don’t like them. Quite frankly it seems extremely unlikely that in the job market of the future your son will have a chance at a decent job without an education, but that doesn’t necessarily mean a university degree either. For my son though personally I know the family could use a doctor or a lawyer…..
January 12, 2009 at 11:40 am
@michelle- I started RESP’s for both my kids after they were born, but went through a rough financial patch so I just stopped the monthly payments for about a year and then when I got a job again a quick phone call and it was back on. I started with $25/month, got over-zealous and put in $150 each for a bit, and then went to $0 in a hurry. Now it’s standard $75 each per month. It’s better than nothing, even at $25/month, and it should at the very least cover some books and maybe the first year of tuition or more (I hope).
As for the fear of them not going into post-secondary education, all I can say is that’s never an option in my family. I was having the same conversation with my sister yesterday, and although our parents didn’t have any and it wasn’t a discussion around the dinner table, we all knew we had to do SOMETHING if we wanted anything in life. None of us are Bill Gates-like, so we needed some edu-macation. Same holds for my kids. If they want to take their certificates or degrees and go work as a cashier or labourer, so be it, but not doing anything isn’t an option in my house. Had way too many friends quit high school or university and I see where they are now…it ain’t pretty.
January 12, 2009 at 11:54 am
To further what Michelle started… what happens to the RESP if the child does NOT choose post-education? Is the grant forfeited? How is the investment gains calculated?
You see, my husband’s side of the family is more “hands on” and does GREAT in the mechanical end of the work-spectrum but school is simply torture for these ADHD men (even trades school). It looks like both of my boys are the same way, and likely will move up North for a practical work education instead of classroom one.
ALSO my parents have set up an RESP for each boy, so can I set up one to? Or is there a limit of one per kid?
January 12, 2009 at 12:00 pm
To be fair to Bill Gates, when he founded Microsoft he was enrolled in a university…… Harvard to be precise
January 12, 2009 at 12:01 pm
First of all, I can’t believe that the CLB bonus for Low-income fams only has an 8% participation rate. That is sad and I hope that research is underway to understand WHY this is.
Dinah, the great thing is that it can be rolled back into your RRPs if your son doesn’t go to school, like Geoff says. But did you know you can also use it for any member of your fam? So if you or your husband ever want to go back to school for whatever reason, you can use it too. I think that’s kind of cool.
January 12, 2009 at 12:11 pm
@ Tracy J – my understanding is that any contributions made by the government have to get repaid at the end, but the the gains (losses) are kept by you. Gail? You can setup your own RESP plan, but the contribution limits all apply. Whether you have 1 plan or 15, the max 20% contribution limits apply (so if you put $2500 in plan 1 you’ll get $500, but if you put another $2500 in plan 2 you don’t get any match, and you’re at $5000 of your total $50,000 lifetime limit). To my mind, it makes the most sense to pick one account and max out at $2500 a year to get the match and put the rest in a nonregistered account or TFSA.
This is the best Q&A I’ve seen on this: http://www.globecampus.ca/in-the-news/article/your-resp-questions-answered/
January 12, 2009 at 12:14 pm
@Erran – maybe this was answered by the others here, but you can roll it into your RRSP which means that you would still get the interest earned if you do not use it. But my personal feeling is that this is a low-risk investment. What is the chance that your son or daughter will get some education of any kind – I would say it’s incredibly likely in the world we’re living in, especially if she or he has some financial resources available to him or her via the RESP. I think the mere fact of having the RESP increases the chance your child will go to school. I guess I’m repeating what people have already said, but I think the odds are in your favour to begin with.
January 12, 2009 at 1:01 pm
thanks for the answers guys! we will continue doing what we are doing then. it’s the best that we can do!
i know that it is quite unlikely that he would not pursue any post-secondary education…but still a worry and a possibility. lol.
January 12, 2009 at 1:05 pm
If you KNOW your child will not pursue post-secondary education AND you choose to transfer the money to your RRSP, make sure that you have the contribution room for the switch to avoid other penalties!
If the parents choose to use it for themselves, can it be for part-time studies? Not a concern for me, but good to know for others.
January 12, 2009 at 1:05 pm
We’ve been saving money for our kids’ education since they were in the womb. The RESP didn’t come into existance until the kids were a bit older – so we transferred the previous savings to this entity. The plans are flexible, allowing one kids to use the other kids’ funds if he/she doesn’t use them for post secondary school. The 20% grant does add up via compound interest. About a year and a half ago we transferred all the mutual funds into GICs (of varying lengths) and with the monthly automatic deposits we have these going in a low MER (Management Expense Ratio) money market fund until we raise about $1000, which we then tranfer to a GIC (due to this lousy economic climate + the fact we only have one more year left to save for child # 2’s post secondary education). Our eldes is 19, our youngest is 17. We’ve only managed to save $50,000 – but it’s something – enough to give them a good start. Child # 1 holds down a part-time job while she is in her 1st year of university + works during the summer. She took a gap year and gave us half her salary (okay – less a trip to Mexico) towards university.
January 12, 2009 at 1:31 pm
@Erran – By using RESPs you get the 20% contribution from the government, which may not have been the case when “wealthy barber” was published. You can also choose a diversified global mutual fund as the vehicle for your RESP contribution.
My family has two small girls, and we have started RESPs for both of them. We use some of our tax return, and the UCB, as well as any $ gifts we happen to recieve. We also have a family RESP, so if one girl decides not to persue further education the other one can use her $.
I can appreciate what some people have been posting about the value of paying for your own education, but tuition costs are rising so much that you couldn’t earn enough in a summer job to afford to pay for school. I have so many friends who are crippled with student loans from their undergrad years. I would not want my kids to experience that! If you are able to use the UCB for an RESP that’s $100/child + 20% that is “free money” from the government.
January 12, 2009 at 1:59 pm
Thanks so much for the info everyone…looks like I have a lot of stuff to do!!
January 12, 2009 at 2:40 pm
could my dh put money in RESP for the kids instead of RRSP (he thinks he has to buy 10 000 dollars of RRSP) I would rather divide the money up and have it for our kids (the 4 of the them)-dh is the one with the ford buyout.
January 12, 2009 at 3:45 pm
I will be honest, I’m not using RESPs. Why not? First of all, we’re paying for daycare right now, which is much more expensive than university tuition. If we can swing that with me on maternity leave, then we can probably swing tuition in our prime earning years. Also, I’m not sure that I want to pay for my kids education. Neither my husband nor I had our way paid, we didn’t use student loans, and we valued our education because we worked for it.
Mostly, we don’t believe they’re a great deal. We’re putting our money into our RRSPs and TFSAs, and we’re paying down our mortgage. This will also give us more flexibility and wiggle room down the line, when our kids are considering post-secondary education. There are a number of tax implication of RESPs, like your kid paying tax on the earnings, that a TFSA doesn’t have. Plus, there are limits on RESPs in terms of how much can be withdrawn and what it can be used for, that are also not present with other investment vehicles.
This is a decision that we have made consciously. Maybe we’re dooming our children and ourselves, but we are aware of the upsides and downsides and we’re doing what makes sense to us. We can live with the consequences. As for our kids, they live with the consequences of our decisions every day, so this is no different.
January 12, 2009 at 3:46 pm
Kathy – my advice – don’t do anything until you research your best options. Get multiple opinions and remember no one cares more about your money than you do. I’m concerned that you keep writing “you have to buy rrsps” – you don’t “have to do” anything typically. Research the best options. Don’t commit any money until you know whatever plan you choose to go with is best for you. Learn these words/phrases before doing anything other than putting the money in a straight up savings account: MER, Trailer Fee, Commision structure, Risk, Rate of return, how your advisor is paid, Early withdrawal fees and penalties, be able to explain the difference between a RRSP and RESP, know what an equity RRSP is vs. a GIC RRSP, etc. 99.99% of the time whatever you can invest in today you can invest in tommorow with little downside so take your time.
January 12, 2009 at 3:55 pm
Amber, first I don’t think you’re dooming your kids at all, I think you’re making a great choice for you – the important part is you’re making an educated choice. However, your scenario really doesn’t take into account the 20% guaranteed return the government gives that you’re passing up. That’s a huge source of free money, but only if you can afford to part with it. It’s also very difficult to predict the future, perhaps in 18 years you will not be at the highest salary curve and in the meantime have lost out on 18 years of returns. However, you have a pretty solid financial understanding so as long as you have that I think you should do whatever you think is right.
January 12, 2009 at 3:56 pm
Great post Gail ~ and informative replies.
We just set up our TFSA’s a week ago at TD Canada Trust and asked about RESP’s. Our first grandbaby is due Easter weekend and we are going to open one up for ‘him’.
Update on my jars….started Nov. 1st and dh and I are doing well. We have money left in the jars at the end of the week, we shop once a week, take money out of our account once a week and don’t use our cards.
Just received my planner and love it! All in all, I’m following Gail down her yellow brick road! Now if I could only click the heels on these red shoes!
January 12, 2009 at 3:59 pm
… the more I read the more confused I am…I’m not sure what I want to do, I do feel much more informed after today, though. Lots of soul searching ahead. I do want my kids to value their education, and I do believe that working hard to get it is important, but I don’t want them to be stuck if they can’t get student loans or pay for themselves…ugh.
January 12, 2009 at 4:33 pm
Michelle – my son will sign a contract with us specifying exactly what the expectations are on both sides before and during his university career. It will outline what I will pay for using his RESP and other things and what my expectations are. I do not expect straight-A’s but he should not expect unlimited beer money either (though I do think socializing is an important skill learned in university). As for being confused – hey it’s our right as parents to be confused!
January 12, 2009 at 4:45 pm
michelle:
Some people go for “matching funds” ideas. If you child supplies $5000 through earnings and savings, the parents match (or match twice) what the child provides. That way, the child must show some drive for school. Others pay once the report card shows up. Some pay for tuition and nothing else. Answers vary greatly. You can change your mind very often over 18 years! Reasonable expectations and educated investment options!
January 12, 2009 at 4:51 pm
We set up RESPs for our kids long long ago. However, our financial advisor didn’t mention that the mutual funds he put it into was back end load and that we’d have to stop 7 years before to not have to payout those fees. So a few years before our oldest was to start university our Scotia lady told us! We quit contributing to that plan and did a different plan. Unfortunately still with mutual funds. As we all know the sky fell in for now on those. Fortunately we also had Canada Savings bonds and GICs for the boys. Our oldest started university this year. He had worked part time all through high school and saved 10% of his money for school, got a couple scholarships and so far because he’s living at home things are going just fine. The original mutual funds are now only worth around $19,000 but have 3 years to grow (I hope)
I think a lot of the debt incurred by students is they refuse to live at home. Our son wasn’t given that as an option as much as he argued about it. If the money ain’t there you don’t spend it. So his books first semester were $725, second were $386. His girlfriends were $1,500 and $328 so it can really vary. Tuition close to $2,000 each semester and then here in Alberta there are fees as well, but one of the things is a bus pass that is good for 10 months for $70 dollars. So with $3,500 in scholarships and a prize of $50 he won in grade 9 math it wasn’t too bad. They can sell their books back to the bookstore right before the end of the semester for around 50%. All in all you need to be on top of them. Get your kids involved in applying for scholarships. Many are for good stewardship, leadership etc. Not just for top marks. Many employers have scholarships that go unrewarded as well as many unions. So see where your child’s strengths are and focus on that. Then with an RESP that is more geared to GIC type vehicles towards the last several years before secondary school starts you’ll be okay.
If kids are are involved in the process they will value it a lot more. Thanks Gail!
January 12, 2009 at 5:09 pm
I’m not sure selling the books is a good idea, though it depends on the programme. For me personally it was a good start to having a grownup library of classic literature, but if you were in a technical program you may not want to keep Beginning AutoCad 1.2 on your shelf forever.
January 13, 2009 at 12:03 am
Im not sure who said that the link for The Horses Mouth didn’t work for them, but maybe if you have a pop up blocker it blocked it from you.
I just clicked the link and it worked for me and it opened a new window.
January 13, 2009 at 8:46 pm
Kathy, it sounds like your husband received a package. If that is true, then a portion of it can be transferred directly into an RRSP without using your existing room. Do you work or are you a stay at home mom? If you stay at home, then he should put it into a spousal plan and in 3 years you can take it out and it will be taxed at your bracket, not his. And if you need it before that, it would probably be because his income is low, so the hit will be minimized.
Also, if hubby got a package in 2008, then his income will be high. And if he doesn’t get work right away, his income will be lower in 2009 and the withdrawal will be taxed at less than the contribution which means you would be up $$$ overall.
It is true that RRSPs are for retirement but the basic principal is to contribute when your income is high and withdraw when your income is low. Retirement is one scenario that meets this, but so does maternity leave, unemployment, return to school.
You need to see a good financial planner NOW!!!!! before you do anything. I am an accountant not a financial planner but I know some that are good. Stay away from the banks, they don’t understand the complexity of planning for your situation.
Susan Mladenovich, CMA
January 14, 2009 at 9:01 am
Kathy, I want to clarify some of what Susan said. A portion of your bubby’s retiring allowance may be rolled to an RRSP, but you need to know the window is small.
The amount that is eligible for transfer under section 60(j.1) of the Income Tax Act is limited to $2,000 for each year or part of a year before 1996 that your honey worked for the company, plus $1,500 for each year or part of a year before 1989 of that employment in which none of your contributions to the RPP or DPSP were vested.
The Feds are actually trying to eliminate the rollover which is why only employment before 1996 is eligible.
The rollover can only be made to the recipient’s own RRSP, so it cannot be made to a spousal RRSP.
That being said, he can contribute (using his regular RRSP room, and any unused room from previous years) to an RRSP and the more he socks away, the more he protects from tax in the short-term.
Note that if he puts it into a spousal for you and you subsequently withdraw it within the three-year limited period, HE will pay tax on it.
What you need to do know is make a budget and trim back to the bare essentials. If you find you have to take money from the RRSP to hold body and soul together, do it slowly since money you take out can’t be put back.
Good luck. g
January 15, 2009 at 10:49 am
Does a comparison chart for RESPs exist (similiar to what you see sometimes with credit card comparisons from the FIs) anywhere out there in the internet world that compares the various options and the management fees involved? eg. TD RESP vs an RESP with Edward Jones Financial Mgment (I’m interested in individual, not group).
Thanks for the RESP info. Blog and comments very timely and informative. I love this site!!!
January 16, 2009 at 4:10 pm
Just a note about living at home vs away
Yes it was YEARS ago when I was in school and moved from my home in Ottawa to attend university in Montreal, school was cheap and rent was cheap there at the time, but living away from home was an EXCELLENT education in budgeting and money management. At home, when you are hungry you can go to the fridge and eat. Away, when you only have 5 bucks, you’re eating ramen and feeling it with every bite
Assuming your kids have a decent foundation in money management and you are not bankrolling them, there’s nothing like being tossed into the real world for a few life lessons.
January 19, 2009 at 9:33 pm
Hi Gail!
I have looked up the Canada Learning Bond on the government website. I am a single mom and a low income earner. I was very excited to hear about this program, but when I went to the website I realized my daughter is too old. She was born in 2002. Is there anything for low income earners out there with older children?
Thanks,
Jenny
January 22, 2009 at 7:24 am
Hi Gail….loved this post. One problem with our RESP’s. We maxed out at $2500 last year and received the $500. Now I got my statement and our total balance is $2200. We lost from the market being so bad? I am hesitant to contribute. Do you think we will see this money come back or should I just keep in a savings account? Thanks,
Elaine
February 10, 2009 at 7:46 pm
I currently hold an RESP for my daughther with the Canadian Scholarship trust (CST) foundation which I started a number of years ago-my daughter is 15 and will be starting post-secondary education in a few years. I e-mailed Gail to find out the difference between these group plans and the ones offered through banks and she sent me this blog. I am really disappointed that I made the choice to be a part of the Group plan but years ago I did not have all of this information. I am interested in getting the groups advice, I am behind on my Group contribution by about $2000, I had stopped contributing while on maternity leave. Is it worth it to catch up on these payments or should I cease contributions altogether and start a new self-directed plan with the bank. I expect that my daughter will be starting university in the next 3 years.
I have another daugther now 2.5 and will be going through a traditional bank for a self-directed RESP for her.
March 5, 2009 at 2:15 pm
Elaine — you haven’t lost or gained from the market being bad, unless you sell. What has happened is that your investments have gone down in value from the point in time you invested until now. Stock markets go up and down at any period in time, not always up and not always down. What you need to do is assess your horizon — ie if your child is 3 years old, you’ve got lots of time to ride it out — if she’s 19, you’re out of time. It does sound to me like you’re a bit unsure about exactly what you’re invested in (an RESP is a vehicle, doesn’t say what the investment is) and you should do that first. And find out what the MER is on your resp. If it’s more than 1.5% ask lots of questions.
Sheila – don’t feel bad you made the best decision you could based on the ifno at the time. I’d investigate leaving, but since you’re close to using it I suspect that you’d be better off remaining in the plan. Don’t do anything until you get answers you want in writing from CST, these group plans do not have the best reputation regarding full disclosure of fees and costs.
May 8, 2009 at 8:14 pm
I started an resp for my youngest when she was 14 which was the last year that I could. I used the child tax benefit for the 4 years. I did $250/month with USCI. Then I was able to add on an older sibling who was 16. They are now 20 and 22. When the plan matured, I got back my principle, which they are now using for a justice and music program in Australia and Hawaii with community work, jelping girls caught in human traffiking in Thailand and Europe (travelling to Russia, Finland, Sweden, Denmark,etc.). Their lives are changed for the better. They will be coming back and continuing their studies locally using, interest, grant and grant interest. I am so thrilled that I saved part of the child tax benefit and gave them this opportunity. My only regret is that I didn’t save more of it. Had I not taken the plunge, although nervously, & not opened the RESP, they would not have gone anywhere. Forced savings is a GREAT thing, a new idea for this generation but an old idea for our grandparents. Wonderfully, my savings were protected from any market changes, I had no worries. I am so thankful!
August 21, 2009 at 2:12 pm
I graduated from college in 2008, and now have settled down with my wife. We are expecting a child in 3 months and she is SUPER excited about getting RESP and how its the greatest thing since SLICED BREAD. I can understand RESP’s can benefit a child because they allow the child not to worry about the financial burden that a post secondary school education can have. How ever I can think back now, that just 1 year ago I had graduated from college and NEVER took a loan from OSAP, TD, Royal bank or my parents for that matter. SHOCKING, in addition I didn’t have RESP. I simply had the thing called a “JOB”. I went to college with No DEPT, and I came out with NO DEPT. I do real call a large number of people in the same boat as myself. This huge cry for RESP is slightly overated
So now I would like to ask the question do people that do not have RESP not go to university? Do all those millions of people actually never obtain a Diploma/Degree REALLY? Do they all come out with $50 million in dept?
If not then which percentage actually do?
January 22, 2010 at 6:43 am
[...] woman has a couple of issues. First, there’s the issue of what RESPs are and how they work. This isn’t a difficult product to understand, although there are some twists and turns with the [...]
January 27, 2010 at 6:51 am
[...] sometimes called “scholarship trust RESPs” aren’t such a great deal, according to a recent government study. S wrote: I was hoping for some *clear* advice regarding Registered Educational Savings Plans. I [...]
February 9, 2010 at 2:51 pm
[...] is another interesting article we found that highlight some benefits and drawbacks. Do you have some RESP or RESP Alternative [...]
August 31, 2010 at 11:31 am
Update in summer 2010:
http://www.taxtips.ca/resp/respalternatives.htm
Before judging whether they are good, get advice from people who have $100k of value in their RESP with a kid that doesn’t go to post-secondary education. Then what?
August 31, 2010 at 11:56 am
Ian:
I tink that you can transfer money into your RSP if you have the contribution room. There are details that I forget.