Comments on: Optimizing RESP contributions

By: Istvan

Istvan — Fri, 10 Feb 2012 21:28:47 +0000

This thread was started when TFSA’s were not yet available. At the time it made sense to try to use the RESP as a tax shelter. Given how hard and complicated is to take out the income money from an RESP, I think RESP’s should be optimized based on keeping your own money (see my previous post) in the RESP for the shortest possible time, but get the maximum CESG for each child. For most people making contributions to the RESP that do not attract CESG makes not too much sense. The less income is in the plan the faster you can get the CESG portion out from the plan and avoid repayment.

By: Istvan

Istvan — Fri, 10 Feb 2012 21:22:42 +0000

My tactic was trying to optimize keeping the money in the RESP for the shortest time. The goal was to get the CESG and run. The plan also assumed that when my first child got the first EAP, I will immediately take out all my principal and pay out my mortgage, that I paid at a slower pace because of the RESP…Unfortunately there one glitch: Having a larger family my first children might qualify for OSAP. Unfortunately OSAP asks you to include in your income RESP withdrawals, although not taxable. This results in a reduction of OSAP loans, and what is worse, in a reduction of non-repayable grants. This is in fact a TAX. It can reach 30-40 percent in some cases, vaporizing any benefit that RESP’s had.
If your planned family income would qualify you for OSAP when your children go to school, be very careful. Take out very small amounts of EAP’s each year. Again it can result in huge reduction of OSAP benefits.
One option would be take out everything in the last year of school at once. By that time the child accumulated enough education credits to not pay tax.

By: FrugalTrader

FrugalTrader — Tue, 01 Feb 2011 01:41:02 +0000

@Tammy, yes each child can have their own RESP, it’s up to you if you want to have a “family” rather than individual RESP. However, in both cases, each child will get their share of CESG.

By: Tammy

Tammy — Tue, 01 Feb 2011 01:29:33 +0000

When we recently had our second child our “banker” changed our RESP to a family RESP.
Can each child not have their own RESP?

By: Leif Jason

Leif Jason — Tue, 22 Dec 2009 21:58:28 +0000

Thanks, that rocks!

By: FrugalTrader

FrugalTrader — Mon, 21 Dec 2009 00:50:52 +0000

Hey Leif, yes you are correct. However, you should note that in 2006 the maximum contribution was $2000, which can be carried forward. .

So basically carry forward:
2006: $2000
2007: $2500
2008:$2500

total: $7000

In any one year, you can receive a maximum CESG of $1000 or 20% of the contribution.

Thus so far, you’ve used $2500 of your carry forward, with $4500 left. Next year, if you contribute $5000, you’ve used another $2500, with $2000 carry forward remaining. In the following year, you can contribute $4500 and receive a CESG of $900. At which point, you are caught up.

Hope this helps!

By: Leif Jason

Leif Jason — Fri, 18 Dec 2009 23:23:22 +0000

I’ve been doing some research into maximizing the RESP CESG and I am hoping for some clarity on unused grant room.

My older child was born in 2006, with no RESP contributions made until this year, 2009. We contributed $5000, enough to use the unused grant room from 2008, however what happens to the unused grant room from 2007 and 2006? If we contribute $5000 in 2010 and $5000 again in 2011, can we get ‘caught up’ on the unused grant room?

By: FrugalTrader

FrugalTrader — Tue, 06 Oct 2009 20:24:13 +0000

TD e-Series provides a means to INDEX your investments for a relatively low fee. You can read more about it here:
http://www.milliondollarjourney.com/the-resp-strategy.htm

By: Curious for KIDS

Curious for KIDS — Tue, 06 Oct 2009 20:08:47 +0000

Hi I have read all your posts regarding RESP’s.
I was wondering if you can comment why you you selected TD e-series, is there any other RESP investment option as good as e-series?

By: Sonny

Sonny — Tue, 02 Dec 2008 20:59:49 +0000

Hi guys,
I’m new to all this about investments and RESP… but I was planning to open an account with Questrade and save for my newborn education via ETFs.
I’d like to ask for your comments for the following allocation:

20% XIU – Canadian Large Cap 60 Index Fund
15% XDV – Canadian Dividend Index
15% XSB – Canadian Short Bond Index Fund
25% XSP – US S&P 500 Index
25% XIN – MSCI EAFE Index Fund

Am I putting at risk the future of the baby??

Thanks in advance for letting me know your thoughts.

By: FrugalTrader

FrugalTrader — Wed, 25 Jun 2008 01:28:23 +0000

gillian, first congrats on the kids! Sounds like you have a busy schedule. :) With a self directed RESP account, there are no guarantees unless the money is placed into a guaranteed certificate (GIC). The problem with principle guarantees is that 18 years down the road, the original principle will be worth less due to inflation.

If you don’t me asking, what kind of fees do you have to pay for your RESP account? Are there any special terms and conditions?

By: gillian

gillian — Tue, 24 Jun 2008 21:15:04 +0000

I know nothing about investing. I opened individual RESP plans for my little ones (aged 5, twin 3 year olds, and 3 months – all boys:) through a family member at one of “those” RESP companies. I chose this because my principal is guaranteed – are any of these other ways to invest guaranteed?

By: Mike

Mike — Tue, 27 Feb 2007 13:42:07 +0000

I’m a huge resp fan but putting that much $$ in might guarantee that you end up with too much in the account. That’s not the worst thing in the world but for those of us with mortgages etc I’d rather try to put the ‘right’ amount in.