Why an RESP for a Disabled Child ?

I have set up an RESP for my son. For those who don’t remember my son is on the Autism Spectrum, so why would I not put money into this RDSP, instead of an RESP? There are a few reasons for an RESP for a disabled child.

RESP for a disabled child
There can be many reasons that an RESP is still a viable savings plan for parents of disabled children, and here are a few to consider.

Child Can Attend Post-Secondary Programs

If your child is not mentally disabled, or can cope with a post-secondary program, then an RESP is a good way to plan for their post-secondary education. In our case my son may be able to go to College, University or other training programs. Having an RESP is simply a good plan for his future.

CESG Can Pay Well

As my son’s RDSP Disability Savings Bond is calculated against my family income, currently the DSB payment is quite low. When my son reaches his 18th birthday the DSB will be calculated against his income, so the pay out for money deposited into his RDSP will be higher.

While the CESG portion of the RESP is also calculated based on my family income, it still pays well. I get 20% pay back up to $2500, so $500 every year is pretty good payback for an investment.

RESP Can Be Rolled into RDSP

There is a way to transfer money from an unused RESP to an RDSP. Is this the best thing to do with the RESP if it is unused is an open question. My RDSP expert said it would be better to collapse the RESP, pay back all grants and pay tax on any growth, and then add the remaining moneys into an RDSP. I will investigate that concept some more as my son gets closer to University age.

Your Situation May Vary

Depending on the situation, what is working for me (in my opinion), may not work as well for your family. I would do the research and look at the arithmetic about whether it is worthwhile setting up both an RDSP and an RESP for your disabled child. If you can only afford 1 savings plan, make sure the RDSP is dealt with first. If your income is low, remember the Canada Learning Bond might be available to your kid’s RESP, and that pays if you put in minimal amounts.

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My 5 Best Investments

I have written previously about my 4 best investments, but I feel it is important to update and follow up on that statement. I now feel I have 5 best investments that I can boast about.

Last week one of my daughters graduated as a Chiropractor, so now my 5 best investments are5 Best Investments

The last 2 investments I didn’t actually spend that much on, but the previous three I feel were mostly my investments. I did have a rule that I pay for the 1st degree (and if I pay for a degree I don’t pay for a wedding). As with all rules they have not been adhered to verbatim.

My parents invested in my education, and for that I am eternally grateful. I have had folks comment that if a child pays for their own education, they are more invested in the process. In my case, letting my parents down was actually a strong motivating factor, so I think that is a wash in terms of arguments.

I like the fact that it wasn’t a foreign investment either. I don’t think I could have afforded sending my kids outside of the country, it was expensive enough out of the city.  If you are planning on helping your kids, an RESP is where you should start with your plan, and then look into CO-OP programs, OSAP and the Scholarships out there (and there are many).

Regrets?

My guess is if I hadn’t put the money away that I used to help my kids’ educations I would have blown it on something stupid, so I am glad I can point to something tangible for where the money went. It has also been pointed out that I didn’t do any of the work (aside from repairing a few computers). Why is this a good investment? I have always relied on the good works of others.

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RESPs and High Fee Mutual Funds

RESPs and high fee mutual funds seem to go hand-in-hand in Canada. Most RESPs, are set up with an “adviser” of sorts (usually at a bank), who makes helpful suggestions as to where your money should go. The question to ask, who profits from this advice? Sometimes both adviser and investor, but always the adviser.

Mutual Fund companies want you to buy high MER funds for 18 years, so they can profit from you. This does not mean RESPs and high fee mutual funds are inevitable.

High Fee Mutual Funds

Whether your investment goals succeed is not their goal. Their goal is to extricate as much money from you in fees and increase their profits. Mutual Funds are businesses, sometimes with shareholders, and employees who want bonuses, remember that and you will be fine. Who and how are profits made, is always the question to be answered.

I have friends ask me about RESPs, as they are aware that my kids have graduated from University, so they ask if I used the  program. My answer is yes, but  I start with warning them that when I set up these accounts they were Canada Trust Mutual Fund accounts. The CT Mutual Funds turned into TD Mutual Funds, but it was not until later that I learned about the TD E-series funds I should have used (and the bear trap in using them).

The typical answers or comments that I get (that really cause my gears to grind) are:

  • I talked to my Manulife One guy and he helped set up the account for us.
  • While I was at the bank, I saw an adviser who set up some RESPs.
  • My insurance broker said they had a really good product for RESPs so I had her set it up for
  • Someone told me about these great Group RESPs, sounds like a great idea I usually go for a beer after hearing this stuff, and sometimes I just weep.

Let’s unwrap these malodorous gifts, first, your Manulife One guy is going to put you into Manulife Mutual Funds because that is where he (or she) makes their money. These funds have MERs that are far too high for a shorter term savings program like the RESP.

The same is true for your local bank. I once mentioned the TD E-series funds to my Bank’s “TD Mutual Fund Expert”, she looked them up and said that she couldn’t  actually  sell me those  funds. I asked why, the  answer, “they don’t let me”. So TD doesn’t allow their “Mutual Fund Expert” sell some  of their Mutual Funds? In fact you can buy only their I-series in your account, you cannot access their E-series, D-Series, O-series or any other unless you have a TD Trading Account).

Your insurance company’s RESP is going to be closed and the only thing you can buy is their High MER funds. I hope you are noticing a great deal of repetitiveness here.

The Group RESP thing, I had to go look up and then almost cracked a tooth while clenching my teeth. Group Scholarship trusts are throwbacks to before the day of the  RESP. They can work for folks, and their forced savings is a good thing for many folks, but read all the rules very carefully. What are the penalties if you take money out quickly (or early)? Are there penalties if your child doesn’t go to post­ secondary school? What are the rules about what is a post-secondary education.

If I could just hand someone a simple outline like say this article, this article or this article, I would, but I guess no one writes about RESPs much? Yes, that is sarcasm, why do people spend more time worrying about what organically grown kale they want to  buy, than this important  investment?  Rhetorical  question, don’t  answer that.

Are RESPs a Good Idea ?

An RESP is a great idea for your kids’ education, but don’t jump at the first one you see. Do some research; know what you are buying and how much it is going to  cost you. Mutual Funds and other associated firms are hoping you get confused in terms of how much you pay in management fees. It can get confusing especially with the grant money going into the account which can muddle your figures. Your goal is trying to pay the least in fees, and maximize your growth and grants received.

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Helping Kids With University Costs, Idea #214

If you are planning on trying to help your kids out with their University costs (or other post-secondary ideas), an RESP is a must (just for the free money), however, that is not the only way to ensure you can easily help out your kids reach their educational dreams (or your dreams for their eduction).

I have learned after 8 years of paying for children’s expenses for school, that the most debilitating university costs are not tuition, it is the cost of accommodation. At one point in the 8 years I was

  • Paying the mortgage on my house
  • Paying rent of 3 separate apartments across Canada

When did I become so rich that I could afford this (you might ask)? (sarcasm alert) I most assuredly did not, the RESP money helped somewhat, but these kind of costs can almost double your family living expenses. Living expenses for your kids at school really do add up.

There are remedies for this kind of expense (luckily):

  1. Do not allow your child to move away from home while they are going to University. Whether you really want to inflict this on yourself, is a question you must ask, but that will eliminate many of the living expenses. I know at least one set of parents that said, “I will pay for your tuition, and give you a car to use, if you stay at home. If not, it is all on you.”
  2. Pay off your house before your kids get to University, that way you are rich enough to be able to pay for the rent on “N” different apartments (or residence rooms) (where N is greater than 1).
  3. Make your kids pay for their living costs.
  4. Make your kids pay the whole shot. They want an eduction, time to learn about money at the same time.

Option (2) on the list is a very good target to try to hit, but kind of hard if you are maxing out your RESP, TFSA, and RRSP savings targets as well, but still something to keep in mind!

Options (3) & (4) sound heartless, but I know plenty of folks who paid for their entire University career, because their parents couldn’t help out, and they seem to have survived.

Keep in mind, University costs are not just tuition costs.

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RESP Sometimes Doesn’t Make Sense

RESPs are a great savings tool for parents (or Grandparents) who want to help young folk with the always rising costs of a post-secondary education. With the government add-ons, the whole system really does make sense, if you are planning on helping your children out, but I started wondering would there be a time when putting money into an RESP would make no sense?

There are some very obvious scenarios when savings doesn’t work, like if you are carrying credit card debt, and are having problems “making ends meet”, then putting money in an RESP might not make a lot of sense. Pay off your debt, then get onto the savings bandwagon, with the RESP.

Another interesting scenario I ran into was, what if you have not paid off your own student loans (in Ontario OSAP), by the time your kids are born, should you put money into an RESP, while you are still paying off your own student loans? As with all of these questions, the answer seems to be: it depends.

If you have enormous student loans and cannot keep up enough to make the payment plan set up for you, then maybe an RESP is not a great idea. You should also contact the Student Loans folks and point out that you are having problems paying your loan off.

Typically Student Loans (from the Government) have a relatively low(er) interest rate, and given the automatic 20% kick on for an RESP deposit (up to $2500) you need to do the math on whether you want to pay into the RESP or pay down your loan faster. As I do not believe in the concept of Good Debt, I would suggest paying off the Student Loan First and then try to catch up with the RESP (yes, I know the interest on Student Loans is favorable to your taxes, but it is still money spent on money already spent).

RESP

A Building Block to Savings ?

If you have a Student Line of Credit with a bank (that you opened while at school) and that needs to be paid down, I would strongly suggest that you should pay that down before putting money into an RESP for your child. The Banks rates are usually variable in these situations, so a sudden up tick in interest rates could spell disaster in terms of this debt-load.

The idea of paying off student loans, while putting money into an RESP seems like a contrary idea to me, but I am curious to hear what my readers might be thinking in this area?

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