In 2015, I was “interviewed” for an article that was supposed to appear in the Toronto Star, and you will be happy to hear that I am turning over a new leaf when being interviewed, I prepared for it! Thanks to that, I have these handy RESP tips too!
Previously, if during interviews it sounded like I was talking out of my hat, I was, but things are changing. What happened to the article with the Toronto Star about Registered Education Savings Plans (RESP) I have no idea, but let me give you some of my notes that I had prepared, along with some links to some of my thoughts on the subject.
Useful RESP Tips
- Remember that there is a $50K Lifetime deposit limit
- If you only deposit $2500/year, you will be under that limit, so maybe start with a larger lump sum to give it time to grow?
- If you miss giving up to $2500 one year, you roll $1000 of that limit to the next year
Canada education savings grant (CSEG) is typically 20% up to $2500 deposited (can get higher for lower-income families)
- If one child doesn’t use the money, you can transfer it to other children under the age of 21 (without penalties), but can still be transferred to blood relatives older than 21 ( there will be penalties there).
CLB – Canada Learning Bond
- Little or no money must be deposited to get this. An initial $500 gets put in even if no money is deposited. Most banks are leery to do this, but talk to SmartSaver.org and they will help set things up (in the Toronto Area)
General RESP Advice
- Start early, get your child a SIN. You can start with a larger lump sum to get things going. The longer it has to grow, the better for you. Remember the rule of 72 .
- Use a Self-Directed non-mutual fund-bound system like TD Waterhouse, Questrade, BMO, etc.,
- Beware programs that might have penalties on the principal. Yes the CESG and CLB can have penalties if the child does not go to school. It would be best if you got the money deposited back (and pay tax on the growth)
- Invest in a simple couch potato portfolio with Index Funds or Index ETFs. No need to be aggressive here.
- Acadia cost about $3800/term Trent is about $3500/term, so your RESP isn’t going to be able to deal with much more than Tuition costs. There are many, many more costs associated with the school.
Most schools will show estimates of how much a typical year might cost (U of Waterloo, Trent and Queens do).
- Many folks think their kids should pay for their education, but even if you only put $50 a pay in, it might help your kids start out? It is free money from the government.
As usual you can peruse my Registered Education savings Plan web page, which has a large amount of information on the topic. If you are interested in interviewing me see the About section of this site for details on this.
I’m not sure if I am misreading, or you are misunderstanding but as far as the limit roll: Typically you can get up to $500/year in grant but you can basically make up one years worth if you’ve fallen behind. So if you deposit $5000 you can get a $1000 grant.
Maybe that is what you meant, but it’s not how it reads.
I think I meant that, but thanks for clarifying, as well.
Umm, in your General Advice you say:
– use a Self-Directed non-mutual fund bound system like TD Waterhouse, Questrade, BMO, etc.
and then you say:
– Invest in a simple couch potato portfolio with Index Funds or Index ETFs
If you’re going to the the route of Index Funds what’s wrong with with a fund bound system?
Another tip is to see what incentives your provincial government offers and make sure the institution you choose participates in those (brokerages often do not, but banks – i.e.: fund bound systems – do).
Typically a lot of the fund bound system (at least at TD) are that you cannot access the cheaper Index Funds (in TD case E-series) without going through cogitations and such). Sorry for the confusion.
Ah, yes. That’s why I switched from TD to RBC – cheap index funds and entirely on-line but without any of the e-Series hassle.
OK, so that is very good to know, I thought all banks were the same. Good on RBC