RESP & Children`s Education

  • Assistance with your children's current and future needs, including education funding, setting up Inter-Vivos trusts, RESPs, and gift giving
  • University tuition in Canada increased by 152% over the last 10 years
  • In the Year 2015, They Say It Will Cost over $67,000 for an Undergraduate Degree


What is an RESP?
An RESP is an education savings plan that grows tax-free until your child is ready for post-secondary education. The plan must be terminated by the plans’ 25th year following the year in which the plan is entered into.

How RESPs Grow
This is what happens to your money when you invest the maximum amount of $4,000 at the begining of each year for only six years and let it grow at an average annual compounding rate of return of 10% for 21 years - you will have about $145,000.


A $174 monthly contribution to a ‘CESG assisted’ RESP for 15 years at 10% compound return would provide $84,800.

What is Canada Education Savings Grant?
Effective January 1, 1998 the Federal Government will provide a Canada Education Savings Grant (CESG) of 20% on the first $2,000 in annual contributions for children up to age 18. The maximum annual grant will be $400 per child. Where else are you assured at least a 20% return on investment? With another 10% to 15% return possible from mutual fund investment, this could translate into an annual return of 30% and higher.

What happens if the child does not pursue post-secondary education?
Our RESP plans are multi-beneficiary which allows the option of designating another child. Also, if the plan has been running for at least 10 years, and the beneficiaries are 21 years of age, you may withdraw any unused growth from the plan and transfer it to your or your spouse’s RRSP to a limit of $50,000 effective January 1, 1999 provided contribution room exists. Any growth portion that cannot be offset by the RRSP transfer will be subjected to an additional 20% tax over your normal tax rate.

Can funds be withdrawn at any time?
Principal can be withdrawn anytime tax-free, however, the allowable ‘contribution amount’ is ‘lost’.

How are withdrawals taxed?
Only withdrawals of the growth portion are taxable and are typically claimed by the child who typically has little or no other income.

Does the maximum foreign content rule that applies to RRSPs also apply to RESPs?
Even though the RESP is registered, there is no foreign content restriction.

What is the financial benefit of contributing to an RESP?
A monthly contribution of $167 to a ‘CESG assisted’ RESP for 10 years would provide over $39,185, assuming an annual return of 10%. Without the grant, the RESP would provide $33,210, a difference of almost $5,975. Saving outside an RESP, assuming a marginal tax rate of 40% would provide only $19,926 a difference of over $19,259. Total contributions to the plan - $20,040.


How does Pooled Trust RESPs like Canada Scholarship Trust, Heritage Scholarship, Millenium etc. differ?
MoneyWI$E Financial Inc. does not associate with pooled trusts. While investments in these plans are very secure, because by law, "Scholarship Trust Plans" investments must be invested in interest bearing instruments like GICs, bonds, T-bills etc., they provide only modest long-term growth and may not always keep pace with inflation (returns on this investment tend to be lower than mutual funds over a 5-15 year period). Moreover, the plan must be opened before the child turns 13. With some plans, money in the plan must be used before the child turns 21.

We do not like pooled trusts also because payouts to the students’ are governed by factors that client’s cannot control (since it is based on the numbers of students participating in the pool); up-front fees can be relatively high.
Also, with most pooled plans, students must continue their studies uninterrupted. And with others, there are no ‘partial’ scholarship payouts – if the client stop investing at any point before the plan matures, he/she may receive only the principal, less any fees or penalties. In less flexible plans, clients may also forfeit the plan’s earnings (growth).

There are numerous other disadvantages to Pooled Trust.

It is also possible to save for your children’s future education costs and achieve significant tax savings without an RESP through setting up an informal trust (‘In-Trust For’) account and investing into an equity mutual fund. Although this type of informal trust account is not fully tax-sheltered like an RESP, you will be able to access the funds for any purpose at any time, not just to pay your child’s education costs. More importantly, there is no annual contribution limit to an ‘In-Trust For’ account.

You can provide an outright gift to your children of cash, stocks or other investments. These are taxed differently and attribution rules apply. Speak to your advisor to select the best strategy available for you based on your situation.

You will not have to pay any fees to MoneyWI$E Financial Inc. for us to provide the above mentioned advice if you purchase a RESP mutual fund through us.

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