I’m getting to the stage in my life where I have to start considering kids into my life plan. How will kids fit into the financial picture? How will I teach my kids proper financial values? How will I help pay for their education?

The last question, “How will I help pay for their education” is what we’re going to discuss today. I’m not saying that I plan on footing the entire University/College bill, as I paid for my own, but I would like to be able to help my children if they need it. I guess the only way to ensure that money is available when the time comes is to save for it.

In Canada, this naturally leads us to the Registered Education Savings Plan (RESP). The RESP is a government incentive for parents to save for post secondary education for their children.

How RESPs work:

  • Unlike an RRSP, with an RESP, there is no tax deduction on the contributions. You do, however, get tax free growth in your RESP portfolio.
  • The RESP account can grow tax free and taxed in the hands of your lower income child when it comes time for University. Contributions can be withdrawn tax free (at any time) since they are paid with after tax dollars.
  • Maximum contribution is $4000 annually New rules state that there is no maximum annual contribution limit only the lifetime max (21 years) of $50,000.
  • CESG: Contributions up to $2500 annually are eligible for the Canadian Education Savings Grant (CESG). The CESG will give you an extra 20% on your contributions (up to $500 CESG annually).
  • Enhanced CESG: Low income families (<$36,378) are eligible for up to $600 in CESG annually (extra 20% on the first $500 in contributions). If your family income is between $36,378 and $72,756, you are eligible for up to $550 CESG annually (extra 10% on the first $500 in contributions).
  • If there is unused grant room from previous years, you are eligible for up to $1,000 in CESG for that year.
  • There is a lifetime max CESG of $7,200 per beneficiary/child. Caveat: If your child does not go to University, the CESG must be repaid to the govt.
  • RESP funds can be transferred to an RRSP account (max $50k) if not utilized after it’s maximum lifespan.

What I like about RESP’s:

  • The CESG, which would give us a 20% increase on our RESP contribution / year of up to $2,500 ($500 CESG). Ie. A $2,500 contribution would be topped up with a $500 government “gift” giving us $3,000 for that year.
  • Tax free growth – I could mix up the portfolio with fixed income products and not worry about the 100% taxation of interest income.
  • Ability to transfer the portfolio into my RRSP in case my child/chlidren do not go to University (not if I can help it ;)).

What I don’t like about RESP’s:

  • If my child/children do NOT go to University/College (or other qualified educational institutions), I am limited to transferring $50k of the RESP earnings/growth to my RRSP provided that I have the contribution room. If I don’t have the room at the time, I’m assuming that the remaining will have to be withdrawn as INCOME. Which means a 20% penalty AND taxed at my marginal rate! Note that the capital can be withdrawn at any time without taxation.
  • On top of the taxation, I would be forced to pay back all CESG’s given. So assuming that I receive the lifetime max of $7200, that would mean I would have to pay: $7200 + 20% penalty (on growth) + income tax (on growth). Ouch.

The chance that the beneficiary will not go to University has grave tax consequences when it comes to an RESP. Perhaps a better solution would be to open a separate non registered account and invest in dividend paying stocks. At least then, if the child decides against post secondary schooling, you’ll have a nice portfolio to boot.

There are more details regarding the RESP on the Scotia bank RESP basics page.

Update Jan 19, 2007: According to a reader comment, the RESP is the best way to go if you are planning on saving for your child’s educational future. Reason being is that if your household has a fairly high income with education as a high priority, there is a HIGH probability (>75%) that your child/children are going to participate in post secondary education of SOME sort. Also, if your child does NOT take post secondary education, only the GROWTH is taxable which can be transferred to your RRSP.

Update March 2010: Check out The RESP Book (link) written by a fellow Canadian Personal Finance Blogger.  It is one of the only books written on RESP’s and explains all the ins and outs in an easy to understand manner.  Check out my RESP Book review.

Any body out there using the RESP system right now? What do you think of the program? What strategies do you use to maximize the program?

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  1. Canadian Dream on January 17, 2007 at 9:51 am


    I’m currently using a RESP for the little one. So far it’s all great. I also have the benifit of my wife has no RRSP’s in her name, meaning she will have enough room to take the entire transfer if the little one doesn’t go to university.


  2. FrugalTrader on January 17, 2007 at 9:55 am


    What kind of portfolio do you have for the RESP? Stocks? Income?


  3. canadian dollars on January 17, 2007 at 10:11 am

    can one open an RESP for future kids? I mean I don’t have any offspring at the moment, but can I start planning early? Do you know?

  4. Jeff Mackey on January 17, 2007 at 10:33 am

    I don’t think you’d have to worry about having a huge amount of RRSP space since you’d only have to transfer the amount of growth. Don’t quote me on this, but why would the initial contribution that was taxed previously be subject to double taxation?

  5. Traciatim on January 17, 2007 at 11:16 am

    I use two separate RESP accounts, one for each of my two children. The first one is now 5 years old, opened when my daughter was born through a RESP company. They charge huge fees and it grows at a normal safe rate. I would recommend if you know how to tie your shoes and not drool all over yourself you should set the RESP yourself.

    The other I’m still in the process of setting up to use TD’s E-Funds for their low MERs and few fees. This one is for my Son and although I started a little late I’m confident that this one will beat the one through the company noted above.

    When my kids get older and decide they don’t want to go to school, I’ll just use the tax penalty as a guilt trip on my kids to go to school, or make them pay it using the ‘I put this money away for you, if you want the government to take it then you’ll be reimbursing me for it’.

    I know . . . I’m a cold hearted evil father, but I’ll be damned if I let them grow up with no financial sense or proper schooling. Plus this way they’ll just say “Well, I guess I’ll just go to school then” and my job here is done.

  6. FrugalTrader on January 17, 2007 at 11:37 am

    CAD$: I have no idea if you can start an RESP before you have a child. Even if you could, would you? Are there any “guarantees” that you’re going to have children at all?

    Jeff: Good point. It would make sense that they only tax the growth portion of the RESP. However, even so, if you don’t have the RRSP room, they will charge the 20% penalty + income taxes + CESG payback.

    Traciatim: That is an excellent point. Make your kids fully aware of the financial penalties involved with not going to school.


  7. Ryan on January 17, 2007 at 2:46 pm

    CAD$: As far as I am aware you cannot open an RESP until you have children. In order to open one I believe you need a SIN number.

    Traciatim: I would suggest you look into transferring your first RESP account to your TD one and create what they call a family RESP. This way both of the kids contributions grow together and you still receive grant money for both.


  8. Canadian Money Blogs Reviewer on January 17, 2007 at 10:33 pm

    A question I’m asking on my blog today: is it better to setup one RESP account for two children (which means waiting to contribute until you have a second child). I give more details in the blog, but basically this was recommended by a financial adviser!

  9. Traciatim on January 17, 2007 at 10:52 pm

    Ryan, that would be a cool idea except for the fact that RESP companies have their plans in such a way that there is a huge penalty (in my case I lose $2100 of plan fees) to close the plan. How it works is when you open the plan your first contributions pay the fees for it, and these fees get refunded upon successful completion. I can’t quite remember since I was a little younger and a lot less financially intelligent, but I think I had to sign in blood too.

    I don’t really like the group plans, as you can probably tell. The bottom line though is that both my kids will be better off than I was when I graduated. Though I probably won’t be saving quite enough to pay for their schooling (more like half) at least I know I have helped get them started on their way to a successful future.

  10. Canadian Dream on January 18, 2007 at 9:10 am


    Sorry it took a while to get back to your question.

    Our RESP is through RBC and it a family plan (yes you can set one up with a child). Currently I have everything going into the RBC Dividend Fund. It’s got a good return since I’ve been in it, so I’m happy. I’ll change over to some more stable investments as the little one grows up.

    In regard to the comment about starting a RESP prior to kids. No you can’t, but you could start saving in a taxable account and then after the kid is born move the cash over to the RESP to max out the growth of the account in the first year.


  11. George on January 19, 2007 at 12:08 am

    We set up an RESP for our little one pretty much as soon as we were able to do so – when our daughter was only 2 months old. We would have set it up sooner, but we had to get a birth certificate and SIN card for her first. She’s now reaching her second birthday, the the account already has over $6500 in it.

    An RESP is how the government encourages people to save for their children’s education. They do this by making the account grow tax-free, and by giving away free money (CESG grant money), albeit with strings attached.

    If your child doesn’t use the money for their education, then you have to give the free money back. The 20% penalty off-sets the fact that you’ve received around twenty years of tax-free compounding.

    I don’t think it’s much to worry about, though. Right now, how many people do you know that don’t pursue ANY form of higher education? Sure, not everybody goes to university, but most people will go to college, trade school, pursue an apprenticeship, go to hairstylist school, or any number of other opportunities that ALL COUNT as “qualifying educational programs” under the RESP rules.

    The chances of your children never pursuing any schooling after high school are slim, especially if they are brought up in a family where education is a high priority (families that invest in RESPs tend to put a high priority on education).

  12. FrugalTrader on January 19, 2007 at 6:58 am

    Hi George! You make some excellent points. I wonder what the stats for post secondary education attendance for children who grew up in a home with education as a high priority.

    George, so if the child/children do NOT attend University, you only have to pay back your GROWTH + 20% correct? The principle won’t get taxed twice?


  13. George on January 19, 2007 at 8:31 am

    If you want stats, the best place to go is StatsCan (your tax dollars pay for their work, so you might as well take advantage of it):

    Approximately 77% of 18-24 year-olds from high-income households were attending post-secondary education when the survey was completed. I suspect that the number of children from high-income households who will attend post-secondary education at some point is higher than 77%, since many 18- and 19-year olds will take some form of schooling when they reach age 20 or 21. An RESP can remain open for 26 years, so you can wait a few years if you child doesn’t attend post-secondary right after high school.

    If you make a contribution to an RESP, you are doing so with after-tax dollars (since the money gets reported on your income tax when you earn it). Those contributions are NEVER taxed again, whether the money is used by the child for post-secondary education or is withdrawn from the plan by the subscriber. It’s only taxed once.

    After contributing for a while, an RESP is made up of:
    1) Your original contribution amounts
    2) Government grant money
    3) Investment income earned on 1) and 2)

    When the child(ren) go to post-secondary education, the only amounts subject to taxation in the child’s name are #2 and #3.

    If the child(ren) don’t go on to post-secondary education, #2 has to be returned to the government in full, and #3 can be returned to the subscriber as an Accumulated Income Payment (AIP). The AIP is taxed as regular income, plus the extra 20% tax, but the original contribution amounts (#1) do not get include in the AIP.

    Info on RESPs and taxation is here (from the Canada Revenue Agency):

    Bottom line – if you want to save for your children’s education, an RESP is the way to do it.

    One telling statistic that I came across on the Statistics Canada web site is that families that are going to put away savings for their children’s education (in an RESP or otherwise) will typically start doing so before the child is one year old. Families that don’t save for post-secondary education by the time the child turns one usually won’t start at all when the child gets older.

    • FrugalTrader on January 19, 2007 at 8:39 am

      Another informative comment George. Thank you for taking the time to clear a few things up.


  14. bob on January 22, 2007 at 4:50 pm

    One cool thing about RESPs (among many others) is that if your child chooses not to pursue Post Secondary education, you only have to return the grant, not the interest it earned.

  15. George on January 22, 2007 at 8:58 pm

    Bob, it’s true that you don’t have to return the interest that was earned on the grant money, but it’s fully taxable as income when you withdraw it, plus there is a 20% additional tax.

    It’s still a good deal, IMHO, because the 20-plus years of compound growth should easily compensate for the 20% extra tax you’d have to pay.

    As noted above, the chances of somebody not pursuing some form of post-secondary education are pretty slim. It’s hard to get any sort of career with nothing but a high school education.

  16. Andrea >> Become a Consultant Blog on January 25, 2007 at 7:46 pm

    Does anyone know how they limit your spending with the education savings? Like, if I saved $80k for my son, but he needed just $40k for university, does the government check to see that he spends the rest on university? How do they know where it is going?

  17. George on January 25, 2007 at 8:18 pm

    The government doesn’t really care where the money is going, but there is a limit of $5000 that can be paid to a beneficiary once they qualify to receive an EAP (Educational Assistance Payment), but after the student has been enrolled for at least 13 weeks, there is no limit to the amount that can be paid to the student as an EAP.

    The EAP money is intended to be used for all expenses related to schooling, not just tuition. It can (and is intended to) be used for books, housing, and other living expenses while in school.

    The EAP includes the growth within the RESP along with the government grant money, and counts as income for the student in the year it’s paid to him/her.

    More info is here:

  18. FrugalTrader on January 25, 2007 at 9:08 pm

    Andrea, the consultant of consultants! Thanks for stopping by. Did George’s response answer your questions? Feel free to post any other questions that you may have.


  19. Mike on January 31, 2007 at 9:42 pm

    I’m a little late to the discussion but I just set up my resp last week.
    Lot’s of good info in these comments – 3 comments/ideas I’d like to add:

    1 – The grants are given from the government to the student and you (the subscriber) are really only holding them in trust (so to speak) so if the kid doesn’t go to school you really haven’t lost anything when the grants disappear.
    2 – The 20% tax on the growth on top of the income tax certainly sucks but as I’ve told a couple of friends, if you contribute a sum of $$ to someone’s education fund then how much of that $$ are you expecting back? Of course you wouldn’t be expecting anything because it’s for the education. So if they don’t go to school and you end up getting your contributions plus part of the growth back then you’re a lot further ahead financially than if they go to school. How to deal with the unemployed offspring who won’t move out of your basement is another story… :)
    3 – As George mentioned there is a limit on the withdrawals in the first 13 weeks but after that you can clean out the account so even if your kid doesn’t want to go to school then one option is to convince him/her to attend long enough to get the money out of the account. Doing this would make the withdrawal taxable in the hands of the “student” so splitting it over the year end would help increase the net amount. Depending on your tax situation it might be better for the subscriber to just collapse the plan and pay the taxes themself. I’m hoping to be retired when my son is around 22 so even if he doesn’t go to school I can keep the plan open for a few years (you can keep it open until age 25) and then collapse it in a year when I don’t have any other income. This would reduce the income tax on the the growth (but not the 20% tax) Another thing to think about is that since you can contribute the AIP (growth) to your rrsp and completely avoid (not just defer) the 20% tax and if you don’t normally have any rsp room then you could potentially start creating some by undercontributing to your rsp a few years before the child heads off to school – I’m thinking that if a kid decides not to go school you might get some warnings signs a few years in advance.

    Anyways, sorry for the lengthy post but my conclusion is that you can’t lose with this plan!

  20. FrugalTrader on February 1, 2007 at 7:00 am

    Hi Mike,

    Thanks for leaving your comments, great advice.


  21. Star on February 13, 2007 at 5:26 pm

    Some people don’t do RESP just because they want to get OSAP which may only need to pay back in half.

  22. George on February 13, 2007 at 5:50 pm

    OSAP (or other student loan programs) don’t always get reduced, and they often result in crippling amounts of debt for young adults when they graduate university. The average student debt load right now is around $20,000! I’d rather have the money available for my children so that they can pay for their education without worrying about huge loans to pay back when they graduate.

  23. Mike on February 13, 2007 at 7:44 pm

    Does having more assets (ie resp) mean that osap is harder to get?

  24. George on February 13, 2007 at 8:32 pm

    Yes, having assets such as an RESP available to pay for an educational program reduces the amount of money available from student loans. The logic is that a student with RESPs (or other assets) available to put toward their education isn’t in need of student loans (or, at least, doesn’t need as much loan funding).

    Student loans can be a good bargain, IF the interest rate is reasonable and IF the government “writes off” a portion of the loaned amount. It’s not possible at all to predict either of those things 15-20 years into the future. Having funds in an RESP guarantees that funding will be available for the student’s education, regardless of changes in government policy or interest rates. And the student doesn’t get saddled with any debt after graduating, if they are able to use funds from an RESP for their education.

  25. FrugalTrader on February 13, 2007 at 8:35 pm

    I’m with GEORGE on this one. I graduated from University in 2003 my wife in 2002, and she was stuck with $40k in student loan debt. We were fortunate to have decent paying jobs, good saving habits, and half financial sense to pay them off ASAP. My point is, student loans are not fun.

  26. Mike on February 13, 2007 at 10:54 pm

    I “only” had $5k in debt when I graduated but between unemployment and finally getting a crappy job – it took a long time to pay it off. Sad thing is I really didn’t need the loan and it went mostly for beer etc.

  27. […] February FrugalTrader05:00 amAdd comment I was doing some reading on Tim Cestnick’s site today and came by a great article on optimizing RESP contributions that I thought I’d share with you. For those of you who don’t know who Tim Cestnick is, he is a one of the most renowned Canadian tax authorities in Canada. He’s written a few tax related books, and makes regular appearances on ROBTV. Tim has come up with a plan to optimize your RESP contributions. ..The goal is to accomplish three things simultaneously: […]

  28. Jack on March 8, 2007 at 9:55 pm

    A question about the timing of events in an RESP. Our first child is due May 15. Does this mean that I have until Dec 31 to contribute the $2000 to get the full CESG, or does it go based on the child’s birthday? And how does the CESG get paid? If I contribute monthly, does a percentage of the CESG get deposited at the same time, or do I wait till the end of the year?

  29. Mike on March 8, 2007 at 11:00 pm

    A question that I know the answer to!!

    Each year starting when the child is born (after ’98) you get one year’s worth of ‘grant room’. This can be carried forward indefinitely kind of like an rrsp however you are limited in how much you can contribute each year. Since the annual contribution limit is $4000/year, if you are behind you can only contribute two years worth of ‘grant room’ each year.

    In your case you need to get a SIN number first before you can open an account, but you should be able to do that by next year sometime. In 2008 you’ll be able to contribute $4000 and get the full $800 grant. After that if you contribute $2000/yr you’ll get $400 grant /year and anything you contribute on top of that won’t get a grant.

    And in answer to your original question – all the resp stuff is based on calender year so it doesn’t matter about the b-days.

    Congrats on the soon-to-be-kid! Do u know if it’s a boy or girl?

  30. George on March 9, 2007 at 7:26 am

    Jack: Mike’s got it right regarding the grant room, and I can answer your second question – the CESG is deposited at the end of each calendar month.

    I contribute to my child’s RESP every payday every two weeks, and at the end of the month there are CESG deposits equating to 20% of my contributions. If I contribute $100 twice in a month, there will be two separate deposits on the last day of the month for $20. This continues through the year until the maximum grant has been deposited ($400).

  31. FrugalTrader on March 9, 2007 at 7:27 am

    What kind of investing style do you guys use under the RESP? Indexing? Funds? Stocks? Perhaps a combination?

  32. George on March 9, 2007 at 8:08 am

    For the moment I’ve got the money invested in an asset allocation fund (RBC Target 2020 Education Fund), but I’ll likely switch the money to an index-fund based “couch potato portfolio” once there’s around $10k in the account.

  33. Mike on March 9, 2007 at 8:27 am

    I have mutual funds – 100% equity, 25% Cdn, 25% US, 25% Europe, 25% Asia.

    And don’t worry, I’m getting a discount on the MERs. For the above portfolio the MER is 1.2%. Not necessarily the cheapest portfolio but I’m happy with it.

  34. Jack on March 9, 2007 at 10:33 am

    I was under the impression that the CESG did not carry forward?

    And we’re having a boy!

  35. Mike on March 9, 2007 at 11:18 am

    Congrats – I have a 7 month old son so I know what you will be going through.

    Yup – it definitely carries forward.

  36. Glenn on March 10, 2007 at 12:26 pm

    As an agent with a leading RESP company I am always astounded by the lack of information the general public has regarding RESP,s. It is evident that few people investigate all options open to them. Banks, insurance companies, mutual funds companies, finacial planners as well as RESP companies all offer RESP,s. There are significant differences in these companies plans. The main differences are the actual investment vehicles being used, the payout options, fee structures as well as a refund of fees. It is interesting to note that people will go from dealership to dealership to dealership when shopping for a car, then turn around and take RESP advice from a neighbor. Or open an RESP at the bank they deal with simply because they have other investments there. They are told it is “convienent”. You are talking about a long term investment to benefit your children. My advice is to do your homework and shop around.

  37. Traciatim on March 10, 2007 at 10:34 pm

    To add to post 38, Glenn, and to add to what I posted above I would also like to add to not make the same mistake that I did and absolutely do not use an RESP company that charges fees up front. In fact, from my own experience, I tell anyone who asks me to simply set up a plan and use something like TD’s e-Funds or other low fee, low maintenance options.

    Though my daughter (Whom I used CST) will probably have far less available than my son, only because I didn’t know as much about finances when she was born. Only time will tell if that is actually true, but considering there were something like $2100 of up front fees eating away at my years of compounding I have a funny feeling my low MER ETF’s for my son will out-perform.

    The fees will be refunded at the end without any interest, and I suppose it locks people in so that they have a huge penalty if they cancel early. In my own opinion they have to do this because their product isn’t good enough on it’s own to keep people happy.

  38. Mike on March 10, 2007 at 11:37 pm

    Glenn – good advice. Traciatim, I’m glad to hear that you made the effort to learn more about investments and put your plan in action. As far as your daughter’s resp goes, don’t blame yourself for not being an experienced diyer when you set it up. My opinion is that any kind of savings will take you most of the way to where you want to go. How you specifically invest that savings (ie rrsp, non-rrsp, debt etc) is a much smaller piece of the equation so in your case you still did a very good thing in setting up the resp and putting money into it.

    A comment on both of your posts – I think the problem that people have with RESPs is that most people know nothing about them until they have a kid (why would they?) and then they panic because they want to get the thing set up as quickly as possible. It’s easy to say that they should take the time to do the research but that might not be that practical when you have a screaming baby with a diaper that needs changing :)

  39. Glenn on March 11, 2007 at 9:45 pm

    In response to Traciatim’s opinion regarding RESP companies up front fees, there are a few reason these plans are managed this way. In fact it is a benefit to the client. When I mentioned in my post ( #38 )that I recomend people do their homework, this is an example of what I meant. All RESP providers are regulated by the Ontario Securities Commision ( within Ontario ). You would think that the rules are the same for all. This is not the case. The regulations are far more strict on RESP companies than banks, insurance companies, ect. RESP companies are required by law to provide their clients ” full disclosure ” on their plans. This is why the fees are up front. An RESP company will tell you exactly what your fees for the life of the plan will be, they will not cost you a penny more. Call your bank. Ask them about all fees of their plan. Not just an MER. Also ask about all related fees. There are to many for me to list here. Outside an RESP company there is no full disclosure requirerments unless you ask for specifics. You also need to know what questions to ask. Then ask how much it will cost you at maturity. You will find that they cannot give you an answer. The reason is simple. Since they cannot tell you how markets will perform 5, 10 or 15 years down the road, they also cannot say what your return or fees will be. This brings me to my next point. An MER works similar to componding interest. Over the life of a plan outside an RESP company you can in fact expect to pay 3 to 5 time as much in fees. In my opinion that money would be better for your childern to use for school. The last point I would like to make is the refund aspect. An upfront fee allows RESP companies to invest a portion of the fee. At maturity there is enough of the return on the investment to refund fees. It sounds simple but it works and works well. I could go on for awhile but I think you get my point. An up front fee is in the best interest of the client. Providing thousands of dollars more for a childs education is what keeps RESP companies clients happy.

  40. George on March 11, 2007 at 11:00 pm

    Glenn writes: “Outside an RESP company there is no full disclosure requirerments unless you ask for specifics.”

    Huh? Full disclosure is required of the vast majority of investment products – stocks, bonds, mutual funds – they all have legal disclosure requirements. In any event, just because an RESP company discloses everything, doesn’t mean that their product is better than the competition.

    You mention that banks have so many fees, that there are “too many to list”. This sounds like you don’t know what the fees are, or you’re just repeating a line that you read in your company’s training manual.

    In any event, my RESP (through my bank) has no fees outside of the MER.

    Glenn also writes: “An up front fee is in the best interest of the client.”

    In that case, I have some excellent swampland to sell you. Send me my fee up-front, and I’ll be happy to tell you about it.

    To me, an RESP company is only advantageous to somebody who lacks the discipline to save of their own accord. I know that I have no need for such outside encouragement, and I like the idea of choosing the investment products that suit me best. Others might find the hand-holding that an RESP company provides to be helpful, but I’m definitely not one of them.

    Glenn, it really sounds like you’ve been heavily brainwashed into thinking that your company’s product is the be-all and end-all of education savings. Thank-you for at least having the decency not to post a plug for the company in your comments.

  41. George on March 11, 2007 at 11:12 pm

    One thing I forgot, which is the biggest drawback to plans offered by RESP companies: they invest almost exclusively in low-risk, low-return investments. Primarily, these include government bonds and other fixed-income instruments like GICs.

    The promoters even have the balls to sell this as being an “advantage” to their plans!

    While this might seem like a good idea on the surface, the reality is that when you have 18+ years to save for a child’s education, you are better off investing in higher-risk, higher-return investments at least for the first few years, and then gradually shifting the asset allocation over the life of the plan.

    Investing in a plan where the returns aren’t likely to exceed the inflation rate isn’t a good idea, especially when the cost of education is rising FASTER than inflation.

    I’m all for RESPs, but I think it’s far better for parents to take the initiative to set up their own plans, and invest sensibly, such that the return of the plan will be greater in the long run than the increase in the cost of education.

  42. Traciatim on March 12, 2007 at 6:45 am

    Glenn, that’s pretty interesting. As George had already mentioned the only fees that I will also have is the MER of my funds too.

    Here is some more food for thought. I started the plan for my daughter through CST almost exactly 60 months ago. I put $105.00 a month (as much as I could afford at the time). That means that I’ve put in $6300, and the government would have matched 20% to bring it to $7560. That’s a simple calculation with no interest or anything else.

    My CST plan, however, is only worth $7150. On the statement from their website this also includes $462.76 of interest income. Even with interest I haven’t even caught up to my fees and I’m 5 years in. Good thing they are looking out for my best interest. Also consider this, if I put in 1260 a year and have made only 462 in interest, with no government match that means I’m earning something like 2.4% interest. It’s even lower if you include the interest that should have been on the government matched portion too.

    Then take my son’s RESP that is set up with low fee ETF’s. I only opened it recently and have made a $1000 initial deposit (since I started late and need to catch up to my daughters plan so I contribute the same amount; who need the ‘they love you more cause they contribute more to yours’). I also have put in 4 $105 payments for a total of $1420, add on the 20% that that government throws in and you get $1704. Fancy that . . . my plan is worth just about $1710, even with the recent market corrections.

    Realistically only time will tell if one does better than the other, but until proven wrong I wish I could shout it from the hilltops to stay away from RESP companies.

  43. Mike on March 12, 2007 at 8:25 am

    Interesting info Traciatim – 2 things, do you have any flexibility regarding how much you contribute to this plan to keep it active? Ie can you just contribute a minimum amount and then start another RESP with your online discount broker? That won’t help with the initial fees but it might increase your final $$ amount. Another thing is you mentioned you buy ETFs with your $105/month contribution. Do you pay a transaction fee each time? What about the CESG grant – what do you do with that? I’m just thinking maybe index funds would be cheaper to cut down on transaction costs.

  44. Mike on March 12, 2007 at 8:40 am

    I had to look this up – it appears you can open up other RESP accounts if desired.

    4(a) How many plans can be established for one beneficiary?
    There are no limits on the number of plans a subscriber can establish for a beneficiary, or the number of RESPs a beneficiary may have. However, the annual and lifetime contribution limits are per beneficiary, and cannot be circumvented by establishing multiple plans for the same beneficiary.

  45. Glenn on March 12, 2007 at 9:35 am

    I like to think that being somewhat of an inteligent person I am capable of forming my own thoughts and opinions. So being heavily brainwashed as George puts it is not really the case. My statements and opinions are based on courses I have taken along with much personal research ( it is afterall my profession ). And yes , I also have extensive insight into my companies product. Therefore I am comfortable in saying that it is an excellent product.

    Even though I think highly of our product I never claimed it was for everone. I only suggested that people research what they are getting into, regardless of what company it is.

    If you are only paying an MER that is great and best of luck to you. I honestly hope that twenty years down the road you do not reflect upon our conversation and wish you had taken my advice.

    I cannot help but notice that many people are intent on making comparisons of plans only a few years into them. Please kept in mind that the plans do not mature for some time. Traciatim has the right idea in the last line of post 44, realistically only time will tell.

    I would like to say that I appreciate George’s acknowledgment that I do not post any plugs for my company. I truly believe that it is up to the individual to research and enroll in a plan the best suits their needs, regardless of what the company. I simply encourage people to do some thourogh research.

    I have one last comment to make. This is just something to ponder. A number of our clients are actually bank employees, managers and yes, executives.

  46. Traciatim on March 12, 2007 at 9:57 am

    To Mike: I could theoretically start an additional plan to ‘top up’ my daughters plan with CST. However I want to keep my contributions even between my two children to avoid situations when they are older where one received more directly from me than the other. I’m already pushing just about the limit of where my budget will allow putting aside $210 all together for both my children, and the final word is that both of them will be better off than I was when I went to school.

    Sorry, They are actually index funds and not ETF’s like I previously mentioned. I was in a rush on my way to work and messed up my terminology. I use a mixture of Canadian, US, and International indexes as well as a small (10%) in bonds. My plan is when my son turns 10 to start each year moving more and more in to safer investments as he grows to 18/19 years it will mostly all be nestled nicely in about a 30-70 mix of equity and safer investments. The funds I use have no entry/exit fees save an early redemption fee. Their MERs range from about 0.3 – 0.5% depending on the fund. The CESG also just gets deposited in the funds at when it comes in each month.

    To Glenn: I’m curious to know what company you do represent so that I could read and compare to my current plans. You should e-mail it over to my gmail account: traciatim at

  47. Mike on March 12, 2007 at 11:24 am

    Sounds good Traciatim, I kind of thought you probably didn’t mean ETFs.

    Anyways my point about starting another RESP was to maybe stop making contributions to your daughter’s CST (if that is allowed?) and instead make the $105/m contributions in the new RESP instead. The reason for doing this would be to give you some control over the asset allocation which it sounds like you are not pleased with. I think at the end of the day the kids are going to be more concerned with how much is in the account when they are going to school rather than how much contributions were made.

    One other thing to think about is that maybe you shouldn’t present the resps to your kids as “their” accounts? That’s kind of the idea behind family plans (which you can’t really do at this point) in that other than the grants, the money can go to any beneficiary. You are going to be the owner of the account so it will be up to you how the $$ gets dished out.

  48. Mike on March 12, 2007 at 11:50 am

    Glenn: you know more about the managed RESP plans than I do so correct me if my info is not correct. It seems to me that if someone who wanted to start an resp and was extremely risk averse and didn’t want a lot of hassle setting up an online account and picking their own investments would be best served by doing the following:

    Go to their local bank, set up an resp account (even with $50/yr fees) and buying GICs with the contributions.

    From what I understand from Traciatim, the upfront fees of $2100 will ensure that the managed resp balance will never catch up to the self-directed resp balance assuming both portfolios are in similar fixed income products. I realize you get the $2100 back 18 years later but inflation would have an impact over that time period. The other drawback of the managed resp is that I think if the child doesn’t go to school then the subscriber only gets the contributions back and none of the earnings? (is this correct?). If true then that would be another reason to do the self-directed RESP.

    I guess what I’m asking is what are some of the benefits of the managed resp over the self-directed that would make up for the deficiencies I’ve mentioned?

  49. Traciatim on March 12, 2007 at 11:52 am

    Although that does sound like a good plan in theory, because of the evil scheme that CST uses to get people to join and pay fees, if I stop the contributions then they would also consider that a cancellation of the plan and it would be closed. My contributions would be returned to me, minus the 2100 in fees that were paid. Though these fees will be absorbed by other people in the plan to be paid out later so I would encourage other people with CST to take this route :)

    I think this would be much more of a hit to the overall RESP for my daughter than just sticking it out at this point.

    I had thought about setting up the Family plan for my son so that in case one of the kids didn’t go to school it would be easier to manipulate to get to the other sibling, but at the time of setting up the RESP for my daughter it was already just in her name. Plus, this way I get to use it as a strong arm tactic to get them both to go take a university/college level course or else some of the funds will be lost.

    My plans will probably not pay for their entire education, but as I’ve stated a few times, as long as they are better off than I was when I went to school then I think they will be in good shape to start off their lives. No matter where the money is stored, this really is the goal here .

    I just hope that everyone else reading these comments can learn from my mistake and set up a low maintenance system like I did for my son rather than using a company like CST which I feel like I was suckered in to due to lack of knowledge. Either way is just as easy, and one way doesn’t charge a large amount of fees for the same/similar service.

  50. Mike on March 12, 2007 at 12:34 pm

    Traciatim – I just spent a few minutes perusing the CST prospectus and realized as you say that you can’t change the contribution schedule. What a rip, what happens if someone loses their job or has some other financial hardship? Doesn’t seem fair to me.
    Another thing I saw in the prospectus (since you had mentioned poor returns) was that the returns they stated were quite good considering they are all fixed income investments. The numbers they had were 1 year return – 6.7% and 3 yr return – 7.4%. Then I noticed the small print which stated that these were gross returns instead of net of expenses. Pretty shady if you ask me. Further along the document I found the expenses which are applied to the fund as well as the fund size and it appears that the MER is around 5% or so which explains the difference between the 7.4% gross they claim for three years and the 2.4% return that you mentioned you got. Terrible stuff.
    I’ll have to think about this some more but I suspect you are right in that you might be better off just staying with the plan – however I’ll let you know if I come up with a different opinion (for what it’s worth).

  51. Glenn on March 12, 2007 at 2:47 pm

    Traciatim : I am not prepared to divulge which company I represnt. I do have a legitamit reason for this. I will however say that I do not disagree with Mike when he states that some of CST’s prospectus is” pretty shady “.

  52. Joe Corson on March 18, 2007 at 3:40 pm

    Re: CST – are their any loopholes or legitimate exits along the way that you could take in order to back out and switch to another plan with minimal loss?

    If you were 14 years in, thats one thing, but after a few years in, perhaps it it would be worthwhile. Even if it costs you a few hundred $, it seems as though the peace of mind and flexibility it will bring you will be worth more.

  53. Mike on March 18, 2007 at 4:48 pm

    Joe, I doubt there is any easy way out of the plans once the right of recission period has passed.

    Basically if you leave the plan early, you give up any grants earned so far, any earning on principal & grants, the grant room and the present value of the initial fee which you get back when the program is completed.

    I haven’t worked it out for Traciatim’s example but you’d have to assume a higher rate of return in the new resp to justify moving it.
    Offhand I’d say it might not be worth it.

  54. George on March 18, 2007 at 5:00 pm

    Mike’s problem highlights the difficulties inherent in the RESPs offered by “Education Savings” companies – you get relatively low rates of return coupled with absolutely no flexibility regarding contributions. Sure, the plan will pay out when it matures, but you’re forced to follow a set contribution schedule and other restrictions.

    With a self-directed RESP (such as is available at any of the major banks), you can put your money into whatever investment vehicle you choose, contribute as much or as little as you would like, and you can stop making contributions at any point if you need to, such as in the event of a job loss or other major financial setback.

  55. FrugalTrader on March 18, 2007 at 5:58 pm

    Mike and George, what kind of fees are involved with self-directed RESP’s?

  56. George on March 18, 2007 at 6:15 pm

    FT: The only fees involved in mine is the MER for the mutual fund I’m invested in (RBC Target 2020 Education Fund). There are no transaction fees or other fees involved.

    My daughter is now 2, and we opened the RESP as soon as we could.

    To show you how quickly the money can grow, the balance of the account is now around $6700. This is comprised of $4950 of our contributions, $840 of CESG deposits, and the $500 Alberta Centennial Education savings grant, and about $410 of growth since the plan started.

  57. Mike on March 18, 2007 at 9:58 pm

    I don’t pay any fees for my account (employee) but I think Canadian Capitalist has one set up at TD efunds – no charges other than the low MERs on the index funds.

    I’m sure if you set one up with a bank/investment co you deal with then you might be able to waive the fees if there are any – I think a lot of them are $50/yr?

    Considering the multitude of rules and whatnot around resps I think an resp with no fees (or even $50/yr) is a pretty good deal. They are far more difficult to administrate then an open or rrsp account.

    Another feature of resps is that it’s a great vehicle to get money out of relatives (rather than more useless toys) who want to help out.

  58. Canadian Capitalist on March 19, 2007 at 4:12 pm

    I have set up a RESP account for my boys with TD eFunds. They are 18 mo. old, so for now the account is heavily tilted to equities. As they get older and are 5-8 years away from University, I would slowly move the portfolio to bonds / GICs maturing when we need the cash. To date, I haven’t paid a penny in fees apart from the low MERs. I chose a low-cost, self-directed RESP over group RESPs because of the flexibility and control it gives me.

  59. FrugalTrader on March 19, 2007 at 4:32 pm

    You have twins CC?? That must be an adventure. :)

    Do you already have accounts with TD? Or did you go with the TD brokerage because of their low fees?

  60. Xing on March 20, 2007 at 2:50 pm

    There is a name for those group/pool plans (an Italian phrase I think after some investor) that takes one member’s proceeds to the benefit of the rest of the group when the member defaults, drops out etc. Anyone know the phrase?

  61. Mike on March 20, 2007 at 9:30 pm


    I don’t think that’s appropriate though. The group plans are somewhat restrictive and cost too much but they are still legitimate investment plans.

  62. Xing on March 21, 2007 at 2:15 pm

    It wasn’t Ponzi. If I come across it again I will post.

  63. Xing on March 21, 2007 at 2:33 pm

    Got it. I was thinking about Tontine. See

  64. Mike on March 21, 2007 at 4:47 pm

    Haha…that’s pretty good Xing. I’ve never heard of Tontine but that’s an interesting scheme.

    I guess the group plans do have an element of the Tontine but fortunately they don’t wait until there is only one student left – otherwise the kid might not go to school until they are 85!

  65. Ken on March 22, 2007 at 10:53 pm

    I set up a group plan for all three of my kids. Also, if you did not contribute from the beginning the CESG can be back-claimed from its inception in 1996…i.e, you can contribute $4,000 for each child and get an $800 credit until you have caught up! The group plan lets you be flexible between kids depending on what type/cost of post-secondary education they pursue.

  66. Mike on March 23, 2007 at 11:26 am

    Ken was it a group plan you are in? or a family plan? There’s a big difference.

    Also – the contribution room started in 1998 not 1996 so don’t overcontribute.

  67. Jack on March 23, 2007 at 12:26 pm

    If you plan on starting the RESP when your child is born, is there any reason to contribute more than the $2500/year in order to get the maximum CESG?? This is in reference to the Tim Cesnick article about maximizing the RESP. Say you had another $1500/year to invest, would it be better/worse to invest that $1500 outside of the RESP after you’ve contributed your $2500/year? I’m thinking this method would provide more flexibility, but the investment income would be taxed in your hands, not your childs.

  68. FrugalTrader on March 23, 2007 at 12:33 pm

    Jack: The reason why Cestnick sugguests to maximize the contribution in the early years is to take advantage of compounding over time. You need to work out how much you think your children will need when the time comes. If it were me, I would contribute enough to maximize my CESG’s, and use the remainder on other areas like paying down the mortgage, RRSP, or a non-reg port.

  69. George on March 23, 2007 at 1:29 pm

    There isn’t a really big reason to contribute more than $2500 per year to an RESP. Bear in mind that the most you can contribute, per child, is $42,000 (although that might change depending on budgets). $42000 is roughly $2300 per year for 18 years.

    If you contribute larger amounts to an RESP (say, $5000 per year), you actually start to lose the benefit from CESGs. You can only receive a maximum of $400 per year in CESG money (potentially $500 if the budget passes), and the lifetime maximum is $7200. If you contribute $5000 per year, you’ll receive $400/$500 in CESG money for the child’s first 8 years or so, and at that point you’ll have contributed the lifetime maximum ($42,000), and received CESGs amounting to about $3200 ($4000 under the new budget), out of a potential lifetime maximum of $7200.

    The “sweet spot” for an RESP is about $2500 per year or so (I put in $100 per payday, or $2600 per year). Factoring for compounding, CESG money, and future contributions, there should easily be six figures in the RESP account by the time my child reaches age 18 – plenty of money to pay for one degree, likely enough money for a couple of degrees if she goes that route.

  70. Jack on March 23, 2007 at 2:50 pm

    Thanks, that’s what I was thinking as well.

  71. Mike on March 23, 2007 at 2:53 pm

    According to my calcs – if the investment return in your resp is more than about 2.1%/yr then you are better off putting all your contributions in the first year – the extra return from compounding will more than make up for lack of grants.
    Obviously this is a theoretical idea – I can’t imagine too many people having that kind of money lying around.

  72. Mike on March 23, 2007 at 2:57 pm

    I should have mentioned that in my example I compared contributing $36k in the first year to contributing $2k/yr for 18 years to maximize the grants.
    There probably is some optimum method of contribution which would get more grants ie spread the contributions over the first 5 years in a declining amount but I don’t think it’s worth the effort to figure out since I can’t even do $2k/yr at the moment!

  73. George on March 23, 2007 at 3:02 pm

    If you can come up with $36,000 in spare cash when you’ve got a newborn child, the chances are pretty good that you don’t need an RESP to ensure you’ll be able to pay for your child’s education…

  74. Mike on March 23, 2007 at 3:32 pm

    Haha, my thoughts exactly George.

  75. Xing on March 23, 2007 at 3:38 pm

    Family plans…. Not sure about this but say there is, for arguements sake, a 5 year span between may kids (I only have 1 child now).

    If I open a family plan on birth of first one, would the plan have to be collapsed by year 25? i.e. leaving the second (last) child only 20 years to use the plan?

    So, I am thinking of tucking aside some $ outside of RESP and starting after the birth of my last child (and assuming after that that there are no “Oooops, I pregnant again — didn’t you say you were going to get snipped”)

  76. George on March 23, 2007 at 4:03 pm

    Xing: the only information I could find is that a family plan has to be collapsed in its 26th year, but that doesn’t mean that the second child couldn’t use the funds – you could always withdraw as much as possible (beyond what is needed) while the first child is in school, and keep the money in a separate account to be used for the second child if they go to school at a later point. The only limit is that the first child can only get $7200 of the CESG money.

    Personally, I think it’d make more sense to allow RESPs to stay open for 30 years, so that parents with children more spread apart could open family plans to include all of the children.

    It’d probably be a better idea, if the children are spaced apart more than a few years, to open an individual RESP for the younger child. That way it’s a separate account, with its own “closing” date.

  77. Q Cash on March 25, 2007 at 1:47 pm

    Isn’t there a rule where the principal invested can be pulled out at any time?

    Now that the maximum amount is $50,000, has anyone done a spreadsheet to maximize the return (including CESG now at $500 per year, up to a maximum of $7200.)


  78. […] Related: MoneySense article on RESPs; Comments section of Million Dollar Journey’s post on RESPs. […]

  79. George2 on April 4, 2007 at 1:27 am

    I found this site to have a lot of interesting comments and some other comments about RESP that apear not to be all truthful. Three things any person need to know about RESP when they open ne for their child is. 1. How much can i contibute over a lifetime. 2. How much per year do i need to contribute to get the max contribution from the government and 3. What is the potential return on that RESP. Regardless of what fees you pay people need to compare fees including MER over the life of their RESP. Also people should be aware that alot of RESP info is geared towards 21 Years. Most children will be eligable to start post secondary Education at 18 YOA. So if someone is providing you with a potential return for 21 Years you need to find out what it will be for 17 to 18 Years.

  80. George on April 4, 2007 at 9:32 am

    Just a comment regarding Comment No. 81: While I don’t disagree with anything said there, the “George” who made that comment isn’t the same “George” who made the rest of the comments that appear above it.

    I thought that the answers to the “three things” were pretty clear: 1) the lifetime maximum contribution is $42,000 (soon to be $50,000 in the new budget), 2) To maximize the government grant money, you need to contribute at least $2000 each year ($2500 under the new budget), and 3)The total fees and return will depend on what type of investment the RESP money is placed in. Nobody can tell you what those returns will be with any sort of accuracy, unless the money is invested in extremely low-return investments.

  81. George on April 4, 2007 at 9:34 am

    Just a comment regarding Comment No. 81: While I don’t disagree with anything said there, the “George” who made that comment isn’t the same “George” who made the rest of the comments that appear above it.

    I thought that the answers to the “three things” were pretty clear: 1) the lifetime maximum contribution is $42,000 (soon to be $50,000 in the new budget), 2) To maximize the government grant money, you need to contribute at least $2000 each year ($2500 under the new budget), and 3)The total fees and return will depend on what type of investment the RESP money is placed in. Nobody can tell you what those returns will be with any sort of accuracy, unless the money is invested in extremely low-return investments.

    As far as the number of years for compounding goes, 21 years is a reasonable number. Yes, many children will start post-secondary education at age 17 or 18. But they won’t finish until they are in their 20s, and the RESP can stay open (and compounding) for 25 years. You don’t need to withdraw all the money as soon as the child starts their education.

  82. George2 on April 5, 2007 at 1:17 am

    Well thank you for the comments on my comments. In regard to the number of year compounding, I understand that all the money will not be used at ones. My point was that the potential return is presented as if the whole amount was invested for 21 year and you did not start withdrawals until you have 21 years into the plan. This for the majority of people will not be the case as most students provided they start university/collage when they finish high school will have 2 to 3 years completed before age 21. So the acturies which was based on 21 years really 50 to 75% on the money in the RESP is based on only 17 to 18 years.

  83. George2 on April 5, 2007 at 1:34 am

    Hello again:
    This is more of an interesting site than i taught. True the financial instutions offer flexability when you cannot deposit but keep in mind that 2 % MER over 18 years at a deposit 1200 a year works out to be about per month is a s

  84. George2 on April 5, 2007 at 2:09 am

    Well i once again would like to comment on Glenn #38 , #41 and any others they he wrote. Also Comment on George’s. I would first have to agree with Glenn and that RESP companies are the best. For example you can check this info. If i went to a bank tomorrow and put in $4000 a year for my child and did that for 10.5 year. I would reach the max. Yes i realized that the amounts will be changing due to new budget. That same bank in their info are saying that i wil have a potential return of 90K or so. If i did the same with an RESP company my potential return would be 197K or so. Lets for get the fee and bear in mind that the companies are for the most part no profit (meaning they have no shareholeders like bank to pay) The companied do invest in low rish and so they should as the money is for a child. High rish is also good but you must be prepared to pay the piper when things go wrong. Just ask the income trust people. Having said that, lets just say that the government bonds, utility companies that the RESP companies invest in dont provide a return as expected. and they had a 40 K screw up on my RESP. Do the mat, I still have 160K awhile my fried at the bank has 93K. Also keep in mind that if utility companies dont make money then neither do banks at least not for their customers but nay that is made is for their shareholders.
    All in all if George is happy with having his hard earned dollars at the Bank then that is fine. My whole point of this is that some people get fooled when alot more options are available.

  85. George2 on April 5, 2007 at 2:19 am

    Well I once again would like to comment on Glenn #38 , #41 and any others they he wrote. Also Comment on George’s. I would first have to agree with Glenn and that RESP companies are the best. For example you can check this info. If i went to a bank tomorrow and put in $4000 a year for my child and did that for 10.5 year. I would reach the max. (Yes i realized that the amounts will be changing due to new budget). That same bank in their info is saying that i will have a potential return of 90K or so. If i did the same with an RESP company my potential return would be 197K or so. Lets for get the fees and bear in mind that the companies are for the most part no profit (meaning they have no shareholders like bank to pay) The companies do invest in low risk and so they should as the money is for a child. High risk is also good but you must be prepared to pay the piper when things go wrong. Just ask the income trust people. Having said that, lets just say that the government bonds, utility companies that the RESP companies invest in don’t provide a return as expected and they had a 4 K screw up on my RESP. Do the math, I still have 160K while my friend at the bank has 93K, he hopes. Also keep in mind that if utility companies don’t make money then neither do banks at least not for their customers but any that is made is for their shareholders.
    All in all if George is happy with having his hard earned dollars at the Bank then that is fine. My whole point of this is that some people get fooled when a lot more options are available.

  86. FrugalTrader on April 5, 2007 at 8:59 am

    George P, I renamed your ID to George2 to avoid confusion between you and another regular poster here. If you like, you can use George2 as your ID whenever you make an additional comment.

  87. George on April 5, 2007 at 9:34 am

    George2: I have done the math. Yes, it’s true that the RESP companies invest in low risk investments, but that hardly is an advantage. There’s nothing preventing you from opening an RESP account at a bank and investing the money in GICs and other low-risk, low-return investments. You also gain the flexibility of determining for yourself how much your contributions should be, and you can change that amount at any time.

    I prefer to keep my money in moderate-risk, moderate-return investments; I’ll switch to low risk once my child is in junior high. Once I’ve got about 10k in the RESP account, I’ll be switching the funds over to a “couch potato portfolio” of index funds. Such a portfolio has averaged a return of around 12.5% over the past 30 years, and that’s not including any government grant money. The $7000 that I have in my RESP right now (with no further contributions) will grow to over $50,000 by the time my daughter is 19, assuming an average growth rate of 12.5%.
    That same money, invested in an RESP company’s “safe” investments, growing at 6%, will be worth about $18,000.

    Obviously all of the above numbers are hypothetical. The real return will vary based on market conditions and, in the case of an RESP company, your personal finances (for example, if something happens that forces you to stop contributing to the RESP).

  88. Mike on April 5, 2007 at 10:09 am

    George2: if you think a 2% mer is a lot then calculate the mer on the resp company plans. I did it for CST and it was about 5%. Plus you play upfront fees for the salesperson which also hurts returns even more.

    As George said the final dollar figures are completely hypothetical.

  89. Ray on April 13, 2007 at 6:01 pm

    I’m thinking something like this, though this doesn’t factor in compounding issues (i.e. an even bigger lump sum at the beginning)

    Year Age Contribution CESG
    2006 0 $4,000 $400
    2007 1 $14,500 $500
    2008 2 $2,500 $500
    2009 3 $2,500 $500
    2010 4 $2,500 $500
    2011 5 $2,500 $500
    2012 6 $2,500 $500
    2013 7 $2,500 $500
    2014 8 $2,500 $500
    2015 9 $2,500 $500
    2016 10 $2,500 $500
    2017 11 $2,500 $500
    2018 12 $2,500 $500
    2019 13 $2,500 $500
    2020 14 $1,500 $300
    2021 15 $- $-
    2022 16 $- $-
    2023 17 $- $-
    2024 18 $- $-
    $50,000 $7,200

    And without any proof, I suspect that the trusts (like CST) will have lower returns in the future as parents are less likely to stop the plan… and those who enroll now likely have a higher percentage of kids will will actually attend school.

  90. Cannon_fodder on April 15, 2007 at 8:06 pm

    I’ve just run through various scenarios and, as some people suspected, your end value of the RESP is highest if you can put the maximum amount of $ in at the beginning. Well, not quite the beginning.
    Assuming you make $2500 annual contributions to get the maximum $500 CESG annually, then here is what you get for various RESP growth rates:

    3% Put in $40k year 1, $5k year 2, $2.5k year 3/4
    4% same
    5% Put in $42.5k year 1, $2.5k year 2/3/4
    6% same
    7% Put in $45k year 1, $2.5k year 2/3
    8% same
    9% same
    10% Put in $47.5 k year 1, $2.5k year 2
    Only when it gets to 20% does putting all $50k in the 1st year start to pull ahead.

    Of course, who has $40 – $45k to start with and these are in 2007 dollars. Secondly, it seems reasonable to assume the government will continue to increase the maximum contribution limit and hopefully increase the maximum CESG contributed.

  91. Jesse on May 27, 2007 at 12:17 pm

    I used to be a sales rep for an RESP compnay.Here are my concerns with the Group or pooled plans.They invest primarily in bonds and some companies are investing in Index Linked notes to give the equity exposure.If a Canadian Gov’t Canada 10 year Bond pays 4.42% how can they expect to grow your plan at 6% as they use in the pronmotional materal? Also, pick a number you think inflation will be over the next 10 years and deduct that from the 4.42% paid on the bond and that’s your real return.Can you put your child through school on a 2% or so return after inflation?
    Group plans pay out an EAP or Education Assisted Payment based on the number of units you purchased.CST,only a few years ago paid $710 per year for each of their 4 annual Education Assisted Payout’s, now it is $600.That is a considerable drop in what you “hypotherically” will receive.This is to me an indication that they expect returns to get smaller not larger in future years. Additionally,they changed the payout before they gave their reps the proper software to update laptop presentations and their website.In other words, Reps were showing potential clients “illustrated values” that weren’t current.It also took their Web Site a long time to catch up, but is now current.
    The plans like to say your Principal is guaranteed , but the prospectus will probably now say it is “protected”.Ask who “guarantees” your principal, how can the non profit foundation provide a “guarantee”?As they now trade Bonds rather than hold them to maturity there is a risk of them losing money.
    Fees-these Group Plans are, to use mutual fund language , like a front end load fund.If make a single contribution of 1 unit for a child under 1 year old, it costs you $829-go to their website and use their calcutor.You will pay the $200 enrolment fee on this purchase which means 24%of your money isnt working from day 1.That is a hefty front end load.Ask the rep to show you the value of that $200 at 6% per year over the life of the plan ,and not just the 17 years you invested but also the additional 4 years years before you get all the fees returned to you.
    However, those of you you investing in mutual funds should also ask your rep to tell you what you will in fees over the length of the investment.A plan that grows to $50,00 with a MER of 2.5% is costing you $1250 per year in fees.
    If you want the safety of low risk investments like the Group Plans offer, then ask the Group Plan rep the difference between their plan and a no load bond fund.Again No Load doesn’t mean no fees.
    Those posters who are counting on equities to provide double digit returns based on historical returns need to give their heads a shake.Look at the returns in 2001 and 2002, imagine you had $50,000 in the RESP and in those 2 years you lost over 25%, and your child is 5 years away from needing the money. As a parent who once had this belief and saw his kid’s portolio drop by over 25% over a few years, with the guidance of a full service broker,I can advise you that you must understand that equities are risky, and you won’t have enough time to get that money back and you won’t like the feeling.
    I could go on, but will wait to see if there is interest in this post before doing so.

  92. George on May 27, 2007 at 3:36 pm

    Jesse: I don’t disagree with anything you say. I will point out, however, that my reliance on equities for my child’s RESP is based on the fact that she’s only 2 years old, and won’t need the funds for at least 16 more years. That’s a long enough timeframe to balance out any drops in the stock market. I’ll be shifting the RESP to lower-risk, lower-return investments when my children reach junior high, and making another shift once they reach high school.

    Equities are risky, there’s no question there, but over the long term (i.e. 10+ years) they’ve been one of the best investments available.

  93. Jesse on May 27, 2007 at 5:30 pm

    George,my sense is that you are smarter about investments than most people with young kids.You are entering into a strategy with your eyes wide open and willing to accept that there will be years with losses.The concern I would have with your strategy is that it assumes you have time to recover from the losses with another bull market run while you are in equities and before you shift to the lower risk/lower rturn strategy.Consider this, assume you have 2 years before she enters junior high and 2 years before you want to to switch to a lower risk/lower return strategy and you then have 2 crappy years and she loses a total 25% of the money as happened and 2001 and 2002.Will your strategy of shifting to lower risk ,lower return allow you the time to recover let alone add to your pre loss postion?If, you think your lower risk /lower return will earn 5% per year , then it will take more than 5 years to recover the 25% you lost in those 2 pre shift years.
    In other words, losing 25% when the child is 5 years old may allow you time to recover, losing it when they are 12(is that when they enter junior high?) is a different story.
    Whereas over the long term as you state equities have been one of the best investments, but you dont have a long term to recover using equities if the losses take place in the year before you plan on switching to the lower reurn/lower risk strategy.
    Food for thought?

  94. George on May 27, 2007 at 6:33 pm

    Jesse: I realize that it’s possible that the RESP might lose 25% of its value in a couple of years. Thing is, I’m planning on putting enough money into the RESP that a 25% loss won’t mean my children can’t go to university. It might mean that they’ll need a little extra parental help, or a little more income from part-time employment. If the investments perform really well, I fully anticipate having more money in the RESP than is needed for tuition, books, and living expenses. Any excess will likely be used as seed money for a downpayment on a home, or to assist with post-graduate studies. If the markets take a large downturn and there’s a bit of a shortfall, it won’t be crippling.

    One could invest RESP funds in government bonds. The principal would be virtually guaranteed, but the chances are pretty good that the college fund wouldn’t grow fast enouth to actually pay for any post-secondary education.

    There’s risk in any strategy – it’s a question of balancing those risks against the potential returns.

  95. FourPillars on May 27, 2007 at 8:09 pm

    Jesse, for a resp to lose 25% of it’s value in 2001-2002 it must have been 100% equities. Considering your investment time horizon at that time was between 5 to 8 years, there’s no way the equity portion should have been that high. My niece is starting high school this fall and I suggested to the subscriber (my dad) that the equity portion should only be around 30% with the rest in bond & money market. Admittedly that is a bit conservative but it’s unlikely to go down 25% either. I would suggest with 5 years to go, the equity portion should be between 30 & 50% with the equity portion declining each year.

    It sounds like your “full service broker” was only give full service to himself since the trailers from equity funds are higher than from bond or money market funds.

  96. Dan G on June 23, 2007 at 11:02 am

    Might it be more profitable to invest in RRSPs instead of RESPs? For covering things like tuition (tax deductable), I can see how it might be better. But for non-deductable things like books, board, and beer it might be worse.


  97. FourPillars on June 23, 2007 at 1:08 pm

    I think using your rrsp to help pay for your kids education might work if you have enough room and if you are going to be retired when they go to school.

    I suspect the RESP is better financially although the RRSP option would certainly be better if the child doesn’t go to school.


  98. George on June 23, 2007 at 2:53 pm

    Actually, the RRSP is likely to be a poor option in any event. Every dollar withdrawn from an RRSP is fully taxable at the parent’s marginal tax rate. The money withdrawn from an RESP (other than the original contributions), is taxable in the child’s name. In most cases, the money will be entirely tax-free, since the “income” will be below the child’s personal exemption amount.

    An RRSP might be an option if it could be opened in the child’s name, but that’ll only work if the child has earned income that would create RRSP room. For most kids, that won’t happen until their late teens.

  99. FourPillars on June 23, 2007 at 5:26 pm

    That’s true George but you also have to consider that the money going into the rrsp is pre-tax, the money going into an resp is after tax so that’s a big factor as well.

  100. George on June 23, 2007 at 5:39 pm

    True, but whether the contributions are after-tax or before-tax, the advantages of the RESP (grant money, taxation in the child’s hands, etc) outweigh any initial advantage of using pre-tax dollars.

  101. Dan G on June 23, 2007 at 6:32 pm

    I wouldn’t link the RRSPs to education. When the time comes to pay for schooling I’d treat it like any other large purchase and probably tack it onto my mortgage. Yes, I’d have a nice chunk of new debt, but the RRSPs would continue to grow uninterrupted. No one gets taxed during the education… quite the opposite, I enjoy tuition deductions at *my* relatively high tax rate.

    But of course the taxman will catch up to me much later (and hopefully at a lower rate).

  102. […] Registered Education Savings Plan (RESP) – Million Dollar Journey The CESG will give you an extra 20% on … If i went to a bank tomorrow and put in $4000 a year for my child and did that … preventing you from opening an RESP account at a bank and investing the money … […]

  103. […] Registered Education Savings Plan (RESP) – Million Dollar Journey According to a reader comment , the RESP is the best way to go if … minimum amount and then start another RESP with your online … Or did you go with the TD brokerage because of their low fees? […]

  104. […] parenthood?  Perhaps enough  insurance (on top of debt payment) to put a lump sum into a RESP (you can do this with the new RESP rules), and a bit extra to cover other child are […]

  105. sam on September 28, 2007 at 12:23 am

    i tried to look into RESP througgh TD e-funds.

    on the page the differences between TD Canada Trust RESP & TD Mutual fund RESP is given..

    The mutual funds doesn’nt seemt to qualify for additional CESG Grant & Canada learning Bond.

    i had initially wanted to use TD e-funds(mutual funds)..but now i am a little concerned by the fact that i might not get additional CESG & Canada learning bond…

    what might be the rationale..for the mutual funds being treated differently….

  106. George on September 28, 2007 at 1:01 am

    Sam: I would call TD to find out the reason why they’re saying that the additional CESG and CLB aren’t covered under those plans.

    Bear in mind that the “additional” CESG and the CLB are both income-tested benefits, meaning that if your family income is relatively high, you won’t qualify for them anyway.

    For what it’s worth, my RESP is through RBC, invested in mutual funds, and it qualified for all of the government grant programs. I don’t see why TD should be any different.

  107. FrugalTrader on October 11, 2007 at 9:19 am

    Thanks to FP for pointing out some outdated info in this post. I’ve since updated this article. Let me know if there are any other inaccuracies.

  108. FourPillars on October 11, 2007 at 8:53 pm

    Looks good!


  109. Arlene on October 19, 2007 at 6:10 pm

    I am stuggling right now with RESP’s and which company/bank offers the best form of RESP. I was enrolled in Canadian Scholarship Trust but have recently switched to Bank of Montreal Mutual Funds RESP. I have both men from either side telling me the other person is deceiving me and I just need someone else’s perspective and opinion on this situation. there is so many fee’s with everyone, and I just want the most money for my son, when he is ready for school. please help me

  110. George on October 19, 2007 at 6:47 pm

    Arlene, maybe i can help you but it seem when ever you say something in this site everyone turns against you. First of all everyone has fee attached to RESP, noone works for free, dont let anyone tell you any different. If you are with a group plan then they are paid up front. At bank they take a MER which is a precentage of what you earn.. For example if the MER is 2% on you only make 3% on the return then they still take the 2%. With banks it is over time, with RRSP companies it is up front fees. What you need to ask is what is the possible return, and when is the maturity date. Banks use 21 years. Companies use 18 years when children are ready to go to collage and university. Companies in group plans enhance their fund but who cares where the money comes from as long as you get some. No one can forcast growth so they should be using info from the pass, what have they paid in pass. On most bank sites you will find a chart use it and see. For example if i put $100 a month in for 21 years what are my possible returns. Also explore companies their are many, they also have charts. Depending on which company you check you will find group plan far exceed the banks possible return. Plus do deducation for years as you child will most likely need the money at 18 YOA. Having said that in company group plans if you get in i would recomend staying as not to lose any enrollment fee. Group plans are something you get into and stay, it is kinda a forced comittment. Ifyou t a bank and you dont want to contibute this month or only 6 months this year then so be it. That is your decision and that decision will affect your end result. Find out what precentage was actually earned in previous years less MER. If at company find out what was paid per unit in pass years. Good luck and hope this helps

  111. FourPillars on October 19, 2007 at 6:56 pm

    I’ll agree with George except to say that RESP pooled companies also charge annual fees which are in excess of mutual funds in addition to the upfront sales fees.

    I’d recommend not going with the pooled plans but that said, the pooled plans (resp companies) are a lot better than nothing.

    My best advice is to take your time and research the options yourself – there is no rush to set up the resp.


  112. Traciatim on October 20, 2007 at 10:33 am

    I’m with FourPillars. I have both a plan with CST and a plan through TD Mutual Funds (Using E-Funds). I would take it a couple of steps further and say that if you care about your kids stay away from pooled plans.

    I consider myself ‘suckered’ in to signing up for CST far before I started my quest for financial knowledge. Though i was the one that signed all the papers so I’m the only one to blame.

  113. George on October 20, 2007 at 11:06 am

    (note: I’m not the same George as in Comment #112 above)

    It’s very true that banks will charge a MER, but that MER is always factored into the performance numbers they quote. If a mutual fund has a return of 8% and an MER of 2%, then the “actual” return of that fund was 10%. Thing is, the bank will never say that the fund earned 10% with 2% in expenses – they simply state that the fund earned 8%.

    The best way to minimize your expenses is to use low-cost investments, like index funds and ETFs, where the MERs are well below 1% (often below 0.5%).

    As far as calculating returns based on 18 years or 21 years, I don’t think it really matters, since a typical child will be in school from ages 18-23 (approximately). They won’t need every penny in their college fund as soon as they turn 18, so the fund’s investment gains after that point will still play a part. Similarly, it makes no sense to plan for retirement assuming you’ll need every penny as soon as you turn 65.

  114. Arlene on October 20, 2007 at 12:17 pm


  115. […] Thanks to Mike from Four Pillars for pointing out some inconsistencies in my RESP post.  I have since updated the post "How RESP's Work". […]

  116. Kelvin on November 23, 2007 at 9:34 pm

    My children are 5 and 7, and I am going to open a family RESP before the end of this year. Do I have unused grants available if I contribute more than $4000 each?

  117. […] that all debt is paid off, kids are moved out or in college with an established RESP. I've listed below some expected […]

  118. Isabella on November 27, 2007 at 3:26 pm

    I have had nothing but a nightmare with my RESP.
    What they dont tell you is that when you actually need the money, they wont give it to you!
    My son is in second year and through many calls to my Banks affiliated Direct Brokerage, they finally released some to me (he’s in yr 2). No, they didnt cover in time the full balance at first year and now second year. The entire University bill is payable and due – not per semester. They told me to get a bank loan and pay the tuition for my son and then use the RESP money when THEY decided to release it, and apparently an official University invoice and timetable is not enough proof for the government to show that your child is actually going to school. What more do they want. They wont give you piles of paperwork, just an invoice. Thats all we get as parents from the school. It has been a battle for almost 2 years to get that money out. Why should i take a bank loan when i already saved the money for tuition through this RESP? Who will pay for my interest on that – the government. I will never, never again open another RESP account. The government can take their contribution and shove it up their ass!. I want my son’s tuition money now!!

  119. George on November 27, 2007 at 3:42 pm

    Isabella: It would be much more helpful if you would identify the bank/brokerage you’re using and the reason that they refused to release the funds.

    There are restrictions on withdrawals within the first 13 weeks of study, but after that the EAP payments should be made based on your instructions. Once your child is in his second year of study, there really shouldn’t be any issue with having funds paid out. The bank certainly must have given you more information about the reason for the delay…

  120. Isabella on November 27, 2007 at 3:59 pm

    George – National Bank Direct Brokerage.
    I called them in July to make sure i could get his second yr paid by using this RESP and thought i should have no trouble since they only paid out approx $3200.00 for year one – and way after the fact Jan 07 – the bill was due Aug 07 there were kinda late and didnt cover the entire year. (second term yr 1). I called 3 weeks ago to try to close this and get it again. They informed me last year that all monies are elible for release etc, so I just sent them an invoice with both first and second year courses outlined, incidental items, student name # appears there etc. Not good enough and them they said to me, we paid out $3200.00 in Jan 07 – why do you want the rest, you dont qualify because second term is not started yet? What kind of crap is that. I paid his first and second year by saving for it. I had a cushion put aside not thinking i needed to use it for first year. When the trouble started, i started saving for second year. I will be using the rest of the money for the resp hopefully b4 he graduates.
    They say – the proof of full time enrollment is not sufficient and is not in their hands but the “government” decides what is sufficient for withdrawl. I only put in “cash” no bonds etc. I have a younger son and wont get one of these again. No one will convince me this is the way to go. Its money my husband and i saved, we should be able to get it out anytime for whatever reason. I am getting closer – my bank associate is aware and is helping us close this account. We hope to see it next week if they dont give us more run around.

  121. Isabella on November 27, 2007 at 4:00 pm

    George – National Bank Direct Brokerage.
    I called them in July to make sure i could get his second yr paid by using this RESP and thought i should have no trouble since they only paid out approx $3200.00 for year one – and way after the fact Jan 07 – the bill was due Aug 07 there were kinda late and didnt cover the entire year. (second term yr 1). I called 3 weeks ago to try to close this and get it again. They informed me last year that all monies are eligible for release etc, so I just sent them an invoice with both first and second year courses outlined, incidental items, student name # appears there etc. Not good enough and them they said to me, we paid out $3200.00 in Jan 07 – why do you want the rest, you dont qualify because second term is not started yet? What kind of crap is that. I paid his first and second year by saving for it. I had a cushion put aside not thinking i needed to use it for first year. When the trouble started, i started saving for second year. I will be using the rest of the money for the resp hopefully b4 he graduates.
    They say – the proof of full time enrollment is not sufficient and is not in their hands but the “government” decides what is sufficient for withdrawl. I only put in “cash” no bonds etc. I have a younger son and wont get one of these again. No one will convince me this is the way to go. Its money my husband and i saved, we should be able to get it out anytime for whatever reason. I am getting closer – my bank associate is aware and is helping us close this account. We hope to see it next week if they dont give us more run around.

  122. Isabella on November 27, 2007 at 4:03 pm

    Correction – the first year bill due aug 06 – paid some out to us in Jan 07 for first year.

  123. FourPillars on November 27, 2007 at 6:59 pm

    Isabella – other than the 13 week rule that George mentioned, there are no other government restrictions on withdrawing money from the RESP.

    Also – the government doesn’t check enrollment documents (although I supposed they could xreference later on). It’s up to the resp provider to verify that the child is going to school. Normally a letter of enrollment from the institute is sufficient, I imagine one letter for each year.

    Your issues are not with the government – only with your resp provider.


  124. George on November 27, 2007 at 8:23 pm

    Isabella: I have to agree with FourPillars; it really does seem like National Bank is giving you the run-around; if National Bank claims that “the government” is imposing restrictions, ask them to tell you EXACTLY what law/regulation is involved (ask for both the name of the law/regulation and the section number), or to give you the contact information for the government department that is pulling their strings. If they can’t give you a straight answer, you know that they’re feeding you a line of BS.

    That said, there may be restrictions imposed on the account by National Bank (for whatever reason) but they’re just scapegoating if they’re blaming the government for the problems you’re having.

    Also, there should be no reason to provide receipts for expenses to be paid for out of a RESP – the only thing you should need to do is prove that your child is enrolled.

  125. George on November 27, 2007 at 8:39 pm

    As a side note, HRSDC has an excellent series of easy-to-understand infosheets regarding RESPs:

  126. Isabella on November 27, 2007 at 8:58 pm

    125 – FourPillars
    The women i am and have baeen speaking with told me that another department approves these things and that the withdrawl amounts must be approved under the “new rules” . She told me that one of these new rules is that you can only ask for the amount needed per semester, which i found odd when full invoice payments are due. I was asked to write a letter with extra’s to explain why i needed more than the first semester amount. I did that. I think my RESP provider has been giving us the run around. My first phone call this month was on Nov 12. We have faxed all that they asked. I have been doing these types of calls since July 06 – so you can imagine how frustrating it is. I will let you all know when we get our funds. So far no luck.
    My sister recently told me of a couple that had about 20K in there RESP – their son is graduated now and they had to go through a news station to help them finally get there money out. I dont know of the institution they went to, but when my sister told me this, i could understand their frustration completely. All we can say is buyer beware. I was told this was the most efficient and safe way to go when it came to an education fund. I dont understand why this is happening but both my husband and i are determined to get our money out.

  127. George on November 27, 2007 at 9:10 pm

    Isabella: I’ve done some reading on the HRSDC site to figure out what might be happening. You can request an EAP (Educational Assistance Payment) from an RESP. EAPs are composed of the government grant money and any earnings (interest, growth, etc) made over the life of the plan. EAPs are limited to the educational expenses (tuition, books, etc) or $5000, whichever is lower, for the first 13 weeks of the educational program. After 13 weeks, an EAP can be any amount up to the total educational expenses (but not more).

    Any money that you contributed to the plan can be repaid to you at any time, without any tax consequences (since you’ve already paid tax on that money). I can’t see any reason why they could not repay you your contributions – you could use that money to pay for the tuition rather than getting a loan.

    The rules for EAPs are fairly complex, but HRSDC has a good guide with lots of examples. The portion of the guide regarding EAPs is at the following link:

  128. sam on November 27, 2007 at 10:27 pm

    hi george,

    “After 13 weeks, an EAP can be any amount up to the total educational expenses (but not more)”

    if my ivestments grow nicely…& i have a bigger EAP then the educational i lose the surplus EAP…

    does EAP also include interest/growth on my contribution also..


  129. FourPillars on November 27, 2007 at 11:11 pm

    George – thanks for the HRSDC link – it looks like they finally have some more up-to-date info in their capsules.

    Isabella – unfortunately a resp provider can add their own restrictions to their resp programs on top of the governments (as George mentioned) although I would have thought this wouldn’t be the case with a self-directed resp. Keep at it, you’ll get the money out.

    Sam – where is that quote from? For self-directed resps plans there aren’t normally any checks for that sort of thing. You can basically take out as much as you want (after the 13 weeks). I recall seeing something on the gov’t website saying they reserve the right to investigate “excessive” withdrawals but I think the chances of that happening are minimal.

    You can take the money out and use it on whatever you want: books, tuition, beer, rent etc.

    As far as having “too” much money – like I said you shouldn’t have a problem just withdrawing it all normally. It’s a good idea to monitor how much $$ is in the resp and if you think you might have enough then stop contributing.


  130. George on November 27, 2007 at 11:15 pm

    Sam: An EAP (Educational Assistance Payment) is a payout from the RESP, comprised of the grant payments and accumulated growth – your original contributions don’t form part of an EAP payment. The “accumulated growth” includes growth of the grant money and growth that stems from your original contributions.

    There’s actually a whole chapter in the RESP provider user’s guide that explains what happens to surplus amounts in an RESP:

  131. George on November 27, 2007 at 11:26 pm

    FP: I think Sam was quoting me from comment 129. My comment was paraphrasing from the RESP promoter user’s guide.

    A quote from the guide that may be helpful:

    “An RESP Promoter is not required to obtain receipts from a beneficiary as proof of expenses before making an EAP. The RESP Promoter determines whether the EAP helps further the beneficiary’s education, whether it is reasonable, and whether the payment complies with requirements of the Income Tax Act and the terms of the plan.
    As of June 16, 2006, a Verification of Enrolment form has been approved. The form may be used by Canadian universities and colleges to provide their students with the documentation needed for the completion of the Registered Education Savings Plan agreement forms. This form can be downloaded at the following web address:

    The RESP promoter (i.e. the bank) may impose other restrictions to ensure that the EAP amounts are truly for educational purposes, but realistically there’s no reason that they couldn’t pay the full amount of a year’s tuition at the beginning of the year, especially if the university invoices the student for the full year’s amount in September.

    The RESP promoter’s guide really does have a huge amount of information about the nitty gritty details of RESPs. The main index page for the guide is at this link:

  132. […] Registered Education Savings Plan – 133 comments […]

  133. […] doesn't believe in RESP's much like he doesn't believe in RRSP's.  I'm the opposite, I think the RESP […]

  134. Anne Bigras on February 9, 2008 at 1:58 pm

    Currently we have 4 individual RESP’s, our financial advisor suggested we should change the status of each to family RESP. Any advice on this? THe financial advisor says it will allow for easier transfer of funds should one of the children not attend post secondary. I would very much appreciate your thoughts on this – does it really make a difference, make transfer of money easier, what happens to the CESG already in the individual plans, what happens to the CESG portion of the child that does not go on to post sec. ed. when it is in a family RESP. Thank you in advance for your responses.

  135. George on February 9, 2008 at 2:09 pm

    Anne: Assuming all of the beneficiaries are related (i.e. they’re all your children), it’d probably make the most sense to convert one of the RESPs to a family plan, and then to transfer all of the assets from the other plans into that single plan.

    The CESG already in the individual plans will be tracked within the family plan on a per-beneficiary basis. If $1000 was paid in CESG money to each child, then that CESG money is still tracked for each child within the family plan.

    If some of the children don’t go on to post-secondary education, the CESG money within a family plan can be used by the other beneficiaries, subject to the lifetime limit per beneficiary of $7200. Any CESG money above and beyond what can be used has to get repaid.

    Bottom line – any CESG money already credited to the individual plans will stay credited to those children if the plans are consolidated.

    It doesn’t make much sense to me to have four separate family RESP plans – there’s no advantage to that that I can see over just having a single family plan.

  136. Anne Bigras on February 9, 2008 at 5:56 pm

    George, thanks for the quick response. It is 4 individual plans to be made into one family plan. So would the idea be to use up the CESG (or do you have a choice in what funds are removed-grant vs contribution) as much as possible on the first child in the event that one of the other three do not go on? Again George, thanks for your help.

  137. George on February 9, 2008 at 6:10 pm

    Hi Anne,

    Yes, the CESG can be shared amongst siblings, provided that no one child receives more than the $7200 lifetime maximum.

    When the child attends post-secondary education, an application will be made for “Educational Assistance Payments” (EAPs), which are payments of the grant money and accumulated growth in the plan. EAPs are taxable in the hands of the student, and do not include your original contributions (which can be withdrawn separately).

    You don’t get to choose how much of the EAP is comprised of the CESG money, since the proportions are calculated based on the proportion of accumulated growth and CESG money in the RESP when the EAP is made. The exact formulas for calculating how much CESG money is paid out is shown in the RESP promoter’s guide (a link is at the bottom of comment #133).

  138. Hardworking Mom with 4 kids on February 10, 2008 at 12:17 am

    I don’t have time to read all of the blogs but I can say that the upfront fees for our fund get returned to us, our plan is so flexible our kids can go to beauty school for 13 weeks and get all the money, make sure you read the fine print with bank/financial instituion plans as some require you to submit all receipts for expenses..what a pain! Our plan CSTF writes a cheque when they receive the annual adminssions form…this is the best kept investment plan in the world for parents- invest in your kids education, have the kids pay the tax at a very low rate, and guess what you are way ahead of all those people who don’t save in this manner.

  139. George on February 10, 2008 at 1:29 am

    Hardworking Mom: The CST plan is definitely not a secret – it’s highly marketed, and has a lot of restrictions that don’t exist with a bank RESP. The CST marketing people emphasize a lot of the benefits of an RESP (tax-deferred growth, government grant money, etc), but those advantages exist with every RESP account, not just those from CST. The returns from CST plans are also extremely low since the money is invested entirely in bonds.

    While it’s true that you’ll get the up-front fees “returned” when the plan matures (but not before, and not if you cancel the plan before maturity), you’re forgetting about inflation. If you pay $2000 in fees today, those dollars will be worth approximately half as much in 20 years. If you didn’t have to pay those fees (for example, if you opened a bank RESP instead of the CST plan), and instead put the money in a savings account paying 4% interest for 20 years, you’d have over $4400.

    Take a look at some of the previous comments above, and you’ll see some of the complaints about the “group RESP” plans, of which CST is but one.

  140. Traciatim on February 10, 2008 at 12:29 pm

    Hey Hardworking Mom, I have to echo what George is saying. I have a CST plan for my daughter; it’s terrible.

    The reason they give you your fees back is that’s the way they lock you in and don’t let you out. They way they work it is kind of like saying “Well, a bear trap on the leg isn’t so bad. . . eventually it opens”.

    If I could teach every parent one thing as their child is born it’s to avoid group RESP plans with the same vigor as you would keep your child away from someone with the black plague.

    If you read their financial statement for 2007 you’ll find this great tidbit of info “For 2007 the Plan’s rate of return was 4.4% . . . “. This may look great on the surface, but if you own 10 ‘units’ you then paid 2000 in fees, so if you made 5000 in the plan, you earn 4.4% on your 3000 that isn’t fees, or 132 bucks. That translates to 2.64 percent of the actual 5000 amount (the amount you would have if you used a bank instead of CST. This means that if you ended up using simple GICs at a bank earning 3% or more you’ll probably make out far ahead of CST. All of this, and we haven’t even taken out the CST fees yet (like the fee for doing monthly payments, the management fee, the admin fee, and the custodial fee).

    Don’t worry, I got suckered too. CST and all other group plans I’ve found are better than nothing. Almost everything else is better than the group plans.

  141. George on February 10, 2008 at 4:33 pm

    Hardworking Mom: Just to clarify, I’m not criticizing the fact that you’ve set up an RESP for your kids. If anything, if you’ve got 4 kids, it’s amazing that you’ve planned for their post-secondary education and set some money aside for that purpose – many other parents never get around to doing that.

    The unfortunate side of the CST plans is that once you’re signed up, it’s really hard to get out and switch to another RESP provider without giving up the thousands of dollars you’ve paid in fees.

  142. Xing on March 6, 2008 at 10:55 pm

    OK so these possible new changes (tax deductible contributions but then taxed when taken out) have added a new twist.


    If it goes through I wonder what will happen to existing plans. And will the government still kick in the 20%. Probably not if the contribution is tax deductible.

    Anyone have more info or opinion on all this?

  143. George on March 6, 2008 at 11:03 pm

    Xing: It’ll be difficult to tell what might happen since the bill hasn’t yet become law. It’s quite possible that the bill might change before it becomes law, so any talk of what the impact might be is just speculation.

  144. […] what are some options for investment accounts for children.  Right away, I thought about RESP accounts, however, those aren't for Leah as they are too […]

  145. […] After speaking with a bunch of new parents and doing my own due diligence, here is a cheat sheet, step by step, for new parents.  The list will help make sure the child gets their medical coverage, child benefits, and RESP account. […]

  146. The RESP Strategy | Million Dollar Journey on May 14, 2008 at 3:06 pm

    […] you can subscribe to the RSS feed via reader or E-mail.ABC Stocks asked me to post about my RESP strategy. As mentioned in my post on “Having a Newborn – Getting down to business“, I […]

  147. […] begin, in order open a TD e-Series RESP account, a TD Mutual Funds RESP account is required. This is their “in-house” mutual funds […]

  148. interested momma on August 19, 2008 at 7:31 pm

    I have been reading the blog and am very interested. I have also done a huge amount of homework. What I dont get is, all banks and investors charge an MER and this is something that no matter what will not be returned to you. So if you have an aggressive RESP and your MER is 3.5% you can have a loss up to 66% of your earnings. Now to me, that is a higer risk then paying an up front fee to a foundation. Also, when people sign in to CST they are explained to about the enrolment fee, also they can go to a bank ask what their rate of return is (which at this time there are many that have been in the minus zone for a fee months now), how they pay out, what kinds of benefits etc they have. The thing about RESPs through CST is that they are safeguarded, yes they might grow slow. But, when you think about it…you get a group plan bonus (10% of your earnings), a minimum 50% of your enrolment fee, your principal safeguarded, and also that they have been in existence since 1960. If I am not correct, banks and investors only started selling RESPs 10 years ago, what guarantees that they pay out will be smooth, that you wont require to submit receipts (I have heard loads of people saying they are required to do that, and it is YOUR money). Now, an RRSP yes invest it…you have years, but with RESPs you only have 21 years to invest, and me as a mom would rather have my money protected, receive my enrolment fee back (why let a bank/investor keep MERs), and also receive a Group Plan Bonus just for my child going to school. Granted, at the beginning it does grow slow but I for one have 2 CST plans and a friend has one at a bank, and now 5 years later mine is farther ahead. So, take your risk make your decision, but do your homework. RESPs are supposed to be low risk…why lose MERs, low interest rates etc that are offer other places just for the off chance you may want to move your funds. Why would you??? I have never moved my RRSPs from my investor in over 14yrs why would I with my RESPs. Just my 2 cents.

  149. Traciatim on August 19, 2008 at 9:31 pm

    Interested Momma, you sound very much like the CST reps touting banks as ‘high fee monsters’ out to steal your money.

    Also, CST has an MER too . . . though lower than many mutual funds, it’s not nearly as low as most self directed option and is much higher than any of the TD E-Funds series. Take for example if someone wanted to set up an E-Fund account with 25% in each of the Bond Index, Canadian Equities, US Equities, and International Equities. The MERs of each fund are 0.48%, 0.31%, 0.33% and 0.48% respectively. Each of these is lower than the CST Admin fee alone, and that doesn’t include the loss from enrollment fees, the depository charge, Trustee and Custodian Fee, or Management Fees.

    For instance, if you are putting in $100 a month in to CST, which makes $1200 a year and your depository fee is $10 you’ve already spent 0.83% in fees, add in to that the 0.5% Admin Fee and you’re already at 1.3% of your contributions sucked away in fees. Factor in that the first 12 payments actually get you nowhere, then 50% of the next 12 payment (on a newborn) get sucked away and how will that impact your return? You know all those calculators online that show you how much more you have to pay if you wait a couple of years to get started vs starting now? Well CST force you to start late, seriously impacting your returns. Keep in mind if you were to buy 10 units of CST that you have $2000 of funds doing absolutely nothing for you the entire 18 years, and you are only guaranteed to get 50% of that money back.

    CST makes me sick.

  150. interested momma on August 19, 2008 at 10:01 pm

    I still do not agree. I have seen my statements, and at the most have been charged an addition 10 dollars in admin fees, I agree, you have money that is not growing, but what about when the banks/investors are in the minus zone, which they are right now. And, yes I just got off the phone with 2 separate banks and one is at -4% and the other -3.24% and to me, that is a greater risk then the enrolment fees. Plus when you say only guaranteed 50%, that is far less of a loss to me then thinking of losing 4% for months or even years. You have to take it all into your processing. It may make you sick, but yet people sign up, they are comfortable and other advisors talk highly of them. Mine recommended them to me. So, to me…I take the trust of my advisor and her knowledge! Also, as for the 50% enrolment fee returned, since 1992 the full 100% enrolment fee have been handed out to all children that have gone to school. So right there, to me, I would rather take that risk and get back my enrolment fee then be in -4% for months!!! So, CST cant make you sick…why would they. You just think they are this terrible company because you feel a bank or advisor can do better. But, yet when I went to a bank or an advisor…a) they couldnt guarantee or promise what kind of returns it may or may not have (their simplified prospectis, states that within the last 5 yrs – aggressive – the highest was 10% and that was 5 yrs ago and since then have dropped as low as -5.24%) b) they were not sure how the pay out would work c) they couldnt answer all my question about govt grants etc…and to me AND MOST people this does matter. I would rather pay an enrollment fee and a small admin fee and have a stable return (yes, low…but at least not in the minus) also a company that has been running for years and have done thousandds and thousands of payouts. To me as a mom, is very important!!! I know some will love foundations, some will love banks, some will love investors. But, to bad mouth a foundation, company, bank etc is not professional and not right. I just think we should throw out our ideas and what we know, without say…ex CST makes me sick! Banks and advisors lose peoples money every day in investing, so why is that ok…but, yet a company that people sign up and they only specialize in this make you sick. I loved that my sales rep came out and answered all my questions, gave me time to do my homework, and at the end we still signed up with them…even after heading to RBC and our advisor. So, obviously the grass is not greener on the other side! CST would not still be alive 47+ years later if they did not know what they were doing, would they????

  151. George on August 21, 2008 at 8:52 pm

    Interested Momma: You’re making a lot of blanket statements about investments without backing them up with facts. Saying “banks/investors are in the minus zone” without qualifying exactly what you’re referring to makes your statement meaningless.

    Yes, investments in the stock market can go up and down. In recent months they have gone down. Over long periods of time (10+ years) well-diversified stock investments (i.e. investments in index funds) have virtually always gone up, and they have gone up faster than the rate of inflation. Investments in funds like CST are “protected” but they don’t grow very fast, and the growth often doesn’t exceed the rate of inflation (~4% over long periods of time).

    Investments in college funds are LONG TERM investments. It really doesn’t matter to me if my kids’ college fund money drops in value in the short term – right now it’s dropped by a few percent from my original contribution amounts. That money won’t be needed for another 17 years or so, so what really matters is the value in 17 years – the value today is meaningless.

    Also, you mention 3.5% MERs in one of your posts. Low-cost index funds have MERs that are lower than 1%, often lower than 0.5%.

    If you’re truly risk-averse, you can always open an RESP with a bank and put the money in savings bonds or a bond fund. Such an investment would be extremely safe, and would have the advantage over CST that every penny of your investment forms part of your investment, and will grow over time. I hate the idea of giving somebody money on the promise that they’ll return the same dollar value to me many years from now – I’m giving them the use of MY money, and all I get back is the inflation-depreciated money after many years – not a very good deal, IMHO.

  152. Traciatim on August 27, 2008 at 9:46 am

    Here is some interesting facts I found in the RESP Industry Practices report prepared for HRDC by Informetrica:

    “Consumers have made inquiries and lodged complaints with both federal and provincial regulators. We were provided with a sampling of complaint letters received by Human Resources and Social Development Canada (HRSDC) and the Ontario Securities Commission (OSC) in 2006 and 2007, as well as with a log containing one-line summaries of telephone inquiries and complaints received by the Financial Consumer Agency of Canada (FCAC) between March 2004 and September 2007. In general, the complaints are from subscribers and beneficiaries:

    – who withdraw their contributions and find that they receive much less than they paid because of high up-front fees they may not have been fully aware of. This is the case with group scholarship providers. These subscribers also have no claim on the investment income accumulated in their own RESP.

    – who try to switch to a different promoter and cannot transfer the investment income their savings have earned. This too happens with group scholarship providers.

    – who find that they cannot get all or even part of the accumulated investment income in their RESP because their program of study is not eligible under their plan, their studies are too short in duration, they miss application deadlines, the term of their RESP has expired, or because of other restrictions. Most of these complaints also pertain to group scholarship providers.”

    . . .

    Notice that each and every one of the major complaints mentions GROUP PROVIDERS as the problem. That’s kind of interesting . . . This leads me to sum my experience, my returns, and the complaints of others to cry out:


  153. interested momma on August 30, 2008 at 12:45 pm

    The thing I find funny about your facts is: yes, there were complaints made and when I looked into it, by phoning HRDC a few months ago, is this…only 15 families have made these complaints in ON. To me as a parent and the risk factors, only 15 families out of the 250,000 families that CST has signed today…not including the ones that have gone to school is not a high percentage. When I asked about RESPs with banks and advisors and complaints, there have been complaints and also, they have only started selling RESPs in 1997, so honestly…how do we as parents know the pay out etc of a product that had yet not made payments to us parents, how do we know the growth is there, how do we know anything…?!?!? When I went out and did the hunt for RESPs I had advisors saying…you can only go to a college or university to be pd out (ok, how do I guarantee that my children will only go to these schools, with CST they can go anywhere and anything and only having to go 3 wks at 10 hrs per wk per yr, no advisor or bank can match that), also I was told I would have to hand in receipt after recipt to receive my moneys (CST pays out each yr)…so to me, you may have your facts…but it also seems you are so against this product which makes me believe you might be an advirsor yourself and trying to get everyone to stay clear for your own benefits. I have friends upon friends cancelling with banks and their advisors and going with CST. In their prospectus it stats all that you have said…but, yet their are more families that sign with CST, including myself, then any other company in Canada. That is a fact…so to me, they must be doing it right…I have talked to people that have been pd out in the last 5-10 yrs and ALL have had great turn outs. So…hmmm, I cant bad mouth banks and advisors like you are doing CST because I believe it is something that just works with your family and what you feel comforable doing. Bad mouthing just makes you look bad, you cant talk people down for choosing CST most people do.

    It is funny when you talk about pay out and complaints, wait another 10 yrs, I can guarantee that banks and advisors will also have complaints. People complain, that is just human nature…and to me also, to this day the complaints have never had an outcome just thrown out…since it is ALL in their prospectus.

    Also, I know of people on the CST plan that did correspondence and received their money…so, there are alot of GROUP RESPs out there, and it doesnt mean they all pay out the same. Heritage, Universities, CST, banks and advisors all have different products, different pay out methods, different policies…so you cant base complaints on just CST. I am sure you will come back with some more bad mouthing of a product that has worked for thousands and thousands of people, but yet not for the odd person…(small amount of people) just like any product out there.

  154. George on August 30, 2008 at 2:12 pm

    Interested Momma: Your concern about banks not paying out from RESP funds doesn’t make much sense. If you have that concern, why would you keep ANY money in the bank? The they might not let you withdraw from your savings account, RRSP, or GIC either. The same rules apply to those accounts as to RESPs, after all.
    I strongly recommend that you take a look at an independent report that the government commissioned regarding RESP industry practices:

    The report looks at RESPs offered by financial institutions, and those offered by “group RESP” investment plans, such as CST.

    “…I had advisors saying…you can only go to a college or university to be pd out (ok, how do I guarantee that my children will only go to these schools, with CST they can go anywhere and anything and only having to go 3 wks at 10 hrs per wk per yr, no advisor or bank can match that)”

    You need to get your facts straight. The federal government sets rules for what educational programs qualify for EAP payments from RESPs. CST (and all other RESP plans) are bound by those rules, and CST also imposes its own rules. It is not true to say that with CST your kids can go “anywhere and anything” (whatever that means) because the government rules apply to ALL RESPs.

    “…also I was told I would have to hand in receipt after recipt to receive my moneys (CST pays out each yr)”

    The only restriction that the banks have imposed is that no more than $5000 can be paid out in EAPs within the first 13 weeks of the program, but that’s a government rule that also applies to CST.

    “…so to me, you may have your facts…but it also seems you are so against this product which makes me believe you might be an advirsor yourself”

    I’m not in any way an advisor, I’m just a well-informed parent with a good knowledge of investing. Unfortunately, it’s clear that you’ve been so thoroughly brainwashed by the CST salespeople that you aren’t willing to accept that your investment choice might not have been the best one available.

    As I mentioned in a previous comment, you can put your money in a very low-risk, low-return investment via a bank RESP (such as a bond fund) that would provide returns very comparable to those offered by CST, without the downsides of high fees and restrictions on how much money you’re obligated to contribute.

    “yet their are more families that sign with CST, including myself, then any other company in Canada. That is a fact…so to me, they must be doing it right…”

    Your statement is the logical equivalent of “a million lemmings can’t be wrong”. Just because lots of people sign up for something, doesn’t make it a good deal.

    “Bad mouthing just makes you look bad, you cant talk people down for choosing CST most people do.”

    There’s a difference between “bad mouthing” and making factual statements. CST and other group RRSP plans have their advantages – they provide a forced savings plan and very conservative investments for parents who want to save for their children’s education. As a downside, though, they tend to have high fees (relative to bank RESP accounts) and little (or no) choice for the investments. Instead of accusing people of “bad mouthing” CST, why not refute the statements?

    Plans like CST are good for parents who want a simple, idiot-proof investments. As long as they are able to continue making the contributions for the life of the plan, they can be certain that they will get the payouts that are promised. The growth in “group RESP” plans tends to be very low, though – comparable to what you’d get from savings bonds.

    For other parents, however, the flexibility of a bank RESP is preferable. Personally, I like the idea of being able to change my contribution amounts at any time for any reason, and I like having a wide variety of investments tho choose from.

    “Heritage, Universities, CST, banks and advisors all have different products, different pay out methods, different policies…so you cant base complaints on just CST.”

    You’re quite true, with one caveat – every RESP provider in Canada must follow the rules set by the federal government. Some RESP providers (generally, the “group RESP” investment plans) impose additional rules beyond those set by parliament. As a rule, bank RESP plans do NOT impose any rules other than the generic ones that apply to all RESP plans.

  155. […] mortgage payment and cash deposits into your chequing/savings account. I’m not sure about the RESP contributions as I would like to consider that money given to my […]

  156. Me Contra on September 19, 2008 at 5:25 pm

    group RESPs are not necessarily in one’s best interest. You should read more if you’re considering one of these.

    i have posted some details about a personal (bad) experience in my blog

  157. Kelly on November 10, 2008 at 5:04 pm

    My apologies, if this has already been suggested, but I didn’t have time to read all the comments.
    My parents did not want to invest in RESPs, in case I didn’t want to use that money specifically for post-secondary education. So, they invested in Canada Savings Bonds (but, I think this would work with any interest income investment).
    To avoid paying tax on the interest earned on those bonds, they purchased them in my name and filed a tax return for me each year and claimed that interest as income. That way, the only tax they paid on the contributions, was regular income tax on the initial investment.
    I didn’t pay any interest, because my only income in my formative years was the interest on those investments.
    This only works if you either trust your kids to spend the money wisely or don’t even tell them the investments exists until you feel confident they will use it for something you approve of.

  158. DG on November 14, 2008 at 9:38 am

    Kelly: If money is given to a dependent minor to purchase interest bearing investments, then that interest is taxable to the parent (attribution rules). Capital gains are not attributable, nor is any investment income from funds given to a child over 18.

    I’m not sure it has always been this way; I remember my parents buying me CSBs in the early 80s to help teach me about money.

    With RESPs you do run the risk of your child not going to school. I was concerned about that but now with my second child I feel the risk has been substantially mitigated. (It’s highly likely at least one will go to school, and there are ways to transfer RESPs between siblings, but I don’t know the details on it). If you can get past the risk, RESPs give you your tax free growth back plus the hefty 20% CESG bonus on initial deposits.


  159. West Coast Ken on November 26, 2008 at 6:16 am

    First I want to say this RESP blog is chock full of really useful info that I haven’t found anywhere else. I like the comparisons by previous posters about the pros/cons between different entites offering RESP’s. For myself I signed up with a group RESP provider (not CST) in 2004 for my first daughter. Since then I’d like to think I’ve become wiser, especially after reading all the posts above mine. I was leaning on signing up with the same group RESP company for my 2nd daughter but this time around I decided to investigate the other options before doing so – namely banks.

    With the current economic downturn (bust) it makes me wonder how people who were already set up with self directed RESP’s are doing. It could take years for the market to recover to where it was before this fall 2008 downturn. I guess it depends on whether you’ve just opened up a RESP or your 5 or 10+ years in… and what your portfolio mix is.

    For my 2nd time around I think the many benefits of the BANK RESP is what I’ll go for. I bank with TD so for me I need to decide which of the 3 RESP account types they have fit me best. Given the current market conditions I could take advantage of the bargain fund prices… but I’m not sure if I should focus my attention more on the MER of the fund than it’s current fund price. Any suggestions on what index funds with low MERs and good performance to look at?

  160. Traciatim on November 26, 2008 at 8:21 am

    West Coast Ken, my situation is fairly unique as my family has stopped RESP deposits in an attempt to help cash flow while my spouse launches a business, after a year off work going to school. This decision was fairly devastating to the CST RESP for my daughter, it didn’t effect my son’s self directed plan at all, the deposits simply stopped.

    I’ve locked myself out of my CST account, I guess I’m a tool that can’t remember my password. My TD E-Funds account for my son (who is 4) is pretty much 100% equities, so it’s taken a hit as well. I fully expect to start contributions again in 2009, I’m not sure what I will do with my Daughter, but my Son I will simply log in and click a few buttons and it will start again.

    My goal with my son is that once he is 10 I will start shifting the weighting of the equities in to safer things each year until such time as it’s essentially completely safe by the time he is 18. My goal is to teach m kids that an after school job as soon as possible, summer jobs, and working for a year or two after high school, plus my savings, is the way to go to school with little debt and appreciating their schooling that much more. I won’t be able to control their actions when they are that old, but I sure hope they don’t make the same mistake I did and go to school for something they end up not liking and being in debt with essentially nothing to show for it.

    If you are already with TD, take a look at their E-Funds. Canadian Capitalist (another blog) has some great articles on RESPs that include some details on the TD E-Funds.

    If I were starting now howvere I would probably simply put the max in to the RESP to get the government CESG match, and the rest I would put in a TFSA. The TFSA is far more flexible when it’s time to redeem and pay for school, and doesn’t have penalties to get your money out. So unless you have other plans for the TFSA, it may be best to go that route for your education savings.

  161. cannon_fodder on November 26, 2008 at 12:55 pm

    That is a link to a spreadsheet showing 18 different contribution scenarios. Your total contributions will be $45,000 but you can contribute $2,500/year each and every year to maximize the CESG, or you can front load it by contributing increments of $2,500 up to the total $45,000 in the first year. Subsequent years would see a contribution of the $2,500 until the $45,000 amount is achieved.

    It basically compares the benefits of the CESG vs. having more of your money compounding sooner. Of note,

    – if you can only expect a return of 1.05% above inflation, then go with the equal annual contributions. For the most conservative of investors this would be akin to putting it into a high interest savings account.
    – if you can expect even a little bit more of a return, then the compounding effects quickly outweigh the loss of the CESG.
    – interestingly, you would have to get >20% after inflation for the ultimate $45,000 one time contribution to provide the best result.

  162. West Coast Ken on November 27, 2008 at 5:03 am

    Hi Traciatim, I feel for your situation as my RRSP are in the tank so I know how you might be feeling about your son’s RESP. Good thing I’m not retiring anytime soon. I have to keep my aggressive investment style for my RRSP slightly in check when picking mutual funds for my younger daughter – or maybe not… I haven’t quite made up my mind. With the recent drop in the market, It might be a good idea to weight the portfolio on the equity side for the first few years and take advantage of some of the bargains out there.

    The one thing I will be looking into with TD are their rules for withdrawing money when my daughter needs to pay for tuition. I don’t want to be caught off guard fumbling for receipts if they are needed.

    For your daughters CST RESP… is it still active since you’ve stopped making contributions? Hopefully things work out for you.

    Thanks for the TD E-Funds recommendation, I’ll take a look in the next week or so.

    As for the TFSA (Tax Free Savings Account) … I don’t know much about them but I’ll be researching that next. Can I start one in my daughter’s name?

  163. George on November 27, 2008 at 8:57 am

    @West Coast Ken: No, you can’t start a TFSA in your daughter’s name. In order to be eligible for TFSA contribution “room”, you have to be over 18 years of age starting in 2009.

    There’s nothing preventing you from utilizing your TFSA room (or that of your spouse/partner) for education savings, though, other than the contributions are limited to $5000/person/year.

  164. Traciatim on November 27, 2008 at 9:19 am

    You can’t start a TFSA in your daughters name, only people 18 and over are eligible. The deposits are in after tax dollars (as opposed to the RRSP rules) but the good part is that withdrawals are also not taxed (since they already have been, kind of the opposite of an RRSP).

    The good thing about the TFSA rather than the RESP is that in the event your daughter doesn’t go to school there are no penalties to you just using it to buy a boat, a car, a big TV, a down payment on a house etc . . . Plus since you already paid the tax on the income you don’t have to worry about strange tax rules. Though you will need to have some will power not to raid your TFSA for your own purposes if you are setting aside the money for your daughter, which may get difficult as it gets bigger.

    It is a little disheartening watching both my RRSP and my son’s RESP lose value, but I still think I’m making the right decision in sticking with equities through this tough time and hopefully my decision will pay off in the end . . . the only way to know for sure is stick to the strategy.

  165. Sabrina on January 16, 2009 at 12:57 am

    Absolutely all of the posts here have given me insight on the decision I will need to make for my family when I have children and for opening an RESP for my 21-month-old step-son. My question is how previous posters RESPs have been effected by the current market in Canada. I have noticed the last post was in November, 2008… and am curious how the situation is playing out now. I am currently benefiting from having a variable rate mortgage with interest rates decreasing but am not informed on the investment market.

    Ps. I made the mistake of having a saleperson from “one of those group RESP companies” visit my home and thankfully I followed my gut feeling that told me DON’T DO IT. I later found out from a co-worker that some of these companies operate as a “scholarship fund” and if your child doesn’t enrol in an accepted program your money is rolled back into units for other kids in the fund. Also, the fact that there is no option for pausing or adjusting contributions made this impratical.

  166. DG on February 1, 2009 at 5:19 pm

    I hold a US investment (Vanguard VWO) in my RESP and just observed 15% withholding on the year-end dividend. Is there anything I can do to get it back or do I have to kiss it goodbye?


  167. Dk on February 6, 2009 at 2:40 pm

    Nope there is nothing you can do. But at least you won’t have to report the dividend as income on your Canadian return.

  168. […] few readers have requested that I do a blog post about the performance of my Registered Education Savings Plan (RESP) portfolio based on the TD e-series low cost mutual funds.  As I’ve written before, I chose […]

  169. Novice on March 12, 2009 at 11:31 am

    So let’s say its 2025 and my son’s RESP has $100,000 in it and he’s waffling on going to school or not (would never happen as I’d have to kick him out first, but let’s play devil’s advocate for a second). So could I in theory tell him to enroll, get him to try out university for 13 weeks, and then withdraw the entire $100,000, even if he drops out the next morning?

  170. Ray on March 12, 2009 at 12:49 pm

    I guess in theory you could do that, $100,000 will be fully taxed at the highest tax bracket so if you could do that you would end up with about $50,000ish.

  171. Novice on March 12, 2009 at 1:38 pm

    But as per post 14, it wouldn’t be the whole $100,000 that gets taxed. It would be only the portion of growth, not contributions or government top-up? Or just growth + top up? And it would be in the son’s name, so couldn’t you just pull out the money, and then make a large RRSP contribution (if you have room) and put the rest in the son’s RRSPs to offset these taxes? Although can you just do a straight transfer from RESP to RRSP if you ahve room, you have to give back the government grant.

  172. George on March 12, 2009 at 1:51 pm

    @Novice: There would be a few problems. Firstly, the growth and grant money would be taxable in the son’s name – the original contributions aren’t taxed at the time of withdrawal. If you withdrew the whole amount at once, it’d likely result in a significant tax payment. If the account had $7200 of grant money in it, plus around $40k in accumulated growth, then the son would be taxed as if he had earned around $47k (minus tuition/education deductions). By my back-of-the-envelope calculation, around $15k or so would be paid to the government in tax.

    You could take the money and put it into your RRSP (if you had room) to reduce your tax payable, but that wouldn’t impact your son’s tax bill. Unless your son had a significant income prior to starting university, it’s not likely he would have very much RRSP room built up, so that wouldn’t be an option either.

    IMHO, the best option is to use the RESP as it was intended – pull the money out as needed to pay for education. Even if the child doesn’t go to a university, almost any form of post-secondary education should qualify for Educational Assistance Payments, including colleges, trade schools, apprenticeship programs etc.

  173. Novice on March 13, 2009 at 3:23 pm

    George – thank you for your detailed response. I agree to use it as intended is best, but this was more of a ‘worst case’ scenario exercise. It’s also hard to predict how tax laws might change in 16 years too.

  174. George on March 13, 2009 at 4:00 pm

    @Novice: No problem. One of the problem with all types of government-sponsored plans (RRSPs, TFSAs, RESPs etc) is that they are subject to regulatory risk – the chance that the government will change the rules at some point in the future.

    Personally, I think the benefits of the plans outweigh the risks, but it is something to keep in mind. There’s no obligation for the rules today to be the same as the rules ten or twenty years from now.

  175. Samuel on March 14, 2009 at 7:06 pm

    Excellent discussion. Here is my story: I have three kids whom I started RESP plans for them a couple of months after each one was born with RESP companies. Never was happy about the upfront fee and the earning they were making, about 1.6 % this year. I decided to bite the bullet and rectify my mistake by canceling the three plans. Alternatively, contribute the money to an RRSP with 3% GIC and at the beginning of the year deposited the income tax refund for the RRSP contribution into the RRSP account again. My Marginal Tax Rate is 43% so I think I am better off with this plan than RESP.

  176. George on March 14, 2009 at 10:38 pm

    @Samuel: The problem with your plan is that when you need the money for your children’s education, every dollar that you withdraw from the RRSP will be taxed at your marginal tax rate (43%). At least with an RESP, the withdrawals are taxable in your children’s names – since they won’t likely have much income, their tax rate will be quite low (if not zero).

  177. Samuel on March 15, 2009 at 12:30 am

    My Marginal tax rate will not be 43% when I will withdraw for their schood. Otherwise, yes I agree with you. I am thinking of a second mortgage or a bank load in that case.

  178. Novice on March 15, 2009 at 1:24 pm

    Samuel – you’re also forgoing the 20% match from the government that you get with an RESP that you don’t with an RRSP. You don’t need to go with a group plan to get the 20%, you can open up a self-directed RESP with a bank and load up on GICs if you wish (though keep in mind that school costs have far outpaced inflation in the past 15 years).

  179. Ray on March 15, 2009 at 3:43 pm

    Samuel: I agree with Novice, open a self-directed RRSP at bank or other full service broker, although there maybe a fee about $45 or some of them. I never liked the group plans.

  180. Samuel on March 15, 2009 at 10:25 pm

    Novice and Ray:
    I did not forget the 20% government grant. At 43% marginal tax rate, I get 43% return on the amount I contribute to RRSP for their school. This past your I contributed $2400 to the RESP, with 20%, I got $480. If I contributed the 2400 to RRSP I would have received $1032 tax refund which I would add to the 2400 of next year. I did a simple spreadsheet to compare $2400 contribtion to RESP assuming fixed rate earning of 3% to contributing 2400 to RRSP (my plan now), and the result after 12 years: $42099 from RESP vs. $76638 from RRSP. If my marginal tax at time of withdrawl is less than 43% my plan is better, correct?

  181. George on March 15, 2009 at 10:31 pm

    @Samuel: You’re comparing apples and oranges. If you invest in an RRSP, you’re investing with before-tax dollars – you aren’t getting a 43% “return” on the contributions, you’re just getting a refund of the taxes already paid on that money – the “return” is just a return of your own money. The RRSP appears to come out “ahead” because you’re putting a lot more money into it – 2400 per year PLUS the tax refund money. If you run the spreadsheet and use equal numbers contributed to each plan, the RESP will definitely come out ahead. On top of that, when you withdraw from the RRSP (to pay for college, university, etc) every dollar withdrawn will be subject to your marginal tax rate (43% or whatever it is at the time).

    Aside from the above, the money that you withdraw from the RRSP to pay for education amounts is GONE FOREVER. You don’t get the contribution room back, so you don’t get to rebuild the RRSP after the kids have finished their education.

  182. Samuel on March 16, 2009 at 12:32 am

    I am not that good with managing money, but it apears very clear to me that the 43% refund is coming back to me only because I contributed the 2400 to RRSP. that 43% would be gone if I contributed to RESP. Is not that a return?

  183. George on March 16, 2009 at 8:07 am

    @Samuel: The tax refund is a “return” in the sense that you’re getting money back, but it’s simply a refund of the money you’ve ALREADY paid to the government. It doesn’t reflect growth in the money contributed. At least with an RESP, the 20% government grant is a “true” increase in the account’s balance (albeit with some strings attached, to ensure the money goes toward education expenses).

    I would strongly suggest that you discuss your plan with a financial advisor or accountant – I don’t think it’s a very wise way to save for your children’s education.

    As a rule, RRSPs are a great vehicle for saving for retirement, especially if you’re in a high tax bracket while working. RESPs are a great vehicle for saving for your children’s education, as long as you contribute enough each year to maximize the government grant money ($2500 contributed for a $500/year grant). TFSAs are a good all-around savings vehicle for people who have already contributed $2500 to an RESP and have more to invest, or for whom an RRSP isn’t the best choice for retirement savings (i.e. low income earners).

  184. DG on March 16, 2009 at 8:51 am

    Samuel, here’s another way to look at it:

    For the RRSP you get a 43% “bonus” upon deposit, and a “penalty” of maybe a little less than 43%. Net “bonus” is the difference, maybe a few %.

    For the RESP you get a 20% “bonus” upon deposit, and a “penalty” of nearly 0% when the funds are taxed in the child’s hands upon withdrawal. Net “bonus” is nearly 20%. Additionally, it is only the growth and CESG that is taxed in the child’s hands; the original amount comes out tax free.

    I ran a spreadsheet comparing RRSP and RESP, each contributing 2400/yr (plus CESG or refund) at 3%. After 12 years, RRSP ended up with $56k, RESP with $45k. After taxes (43% and 0% respectively), RRSP would be $32k, RESP $45k.


  185. Samuel on March 16, 2009 at 12:18 pm

    Thanks George and Dan. I will see a financial advisor.
    Dan: what would the comparison look like if marginal tax rate is 24% at the time of withdrawal using your spreadsheet?

  186. Samuel on March 16, 2009 at 1:46 pm

    Sorry Dan. Please ignore my question in the last post.

  187. George on April 7, 2009 at 9:23 pm

    @Mark: Universitas is pretty much the same deal as the other “group RESP” plans, with the same drawbacks. Similar to other plans, it has substantial penalties if you want to cancel the plan or are unable to make the contributions. It also invests its funds in nothing more than T-bills and bonds, which you can easily do yourself with a self-directed RESP (minus all the fees and restrictions).

  188. Giovany on April 10, 2009 at 12:41 am

    If I cancel RESP there is a limit of time by the gouverment to able to open it again?

  189. George on April 10, 2009 at 9:49 am

    @Giovany: I don’t believe the government has any rules regarding the closing and re-opening of RESP accounts, but bear in mind that any grant money earned would be forfeited if you closed the account.

    A better choice might be to transfer the assets from one RESP account to another, rather than closing the first account entirely.

  190. Lenore on April 15, 2009 at 4:30 am

    I have a problem in regards to RESP accounts that my Father set up for my four children. He Set up these accounts with RBC, he was the owner of the policies, and put each child as the beneficiary on each individual account. My Father passed away in February 2009. His Lawyer has now informed me that these RESPS are no longer the kids. He states that it will go back into Estate. I am the Executrix as well as mother to these children. If I transfer the accounts into my name-I have to pay the Estate the value. I have been told by the bank that I can not put them “in-trust” for the kids nor can I leave them in my Fathers name and the kids use them when of age. The RBC lawyers have not come across this problem as of yet-I was assured by the bank that this was set up properly, and all was ok-how miss in formed they were!!! i just can’t believe that this is happening to my children’s education money. The bottom line is that my Dad had full intent to have left this money for my kids’ education as he named them as beneficiaries, but that doesn’t mean a thing!!

  191. greg_greg on May 4, 2009 at 2:58 am

    I would like to add from my own experience with educational funds. I am the youngest of 2 other siblings and we all had 30k set aside for us in our own names, in non-registered accounts, we were very fortunate to have had parents who could do this. My sister and I both went to university and spent the money on education. However, my brother developed a significant number of issues and never went to university and it created so much heartache and trouble for my parents to watch my brother waste all that money.

    Essentially what I learned forn the situation with my family has taught me when I have kids to put money aside for them, in dividend stock like you said, but in my name. Regardless of the tax issues I know it will not give me the headaches my parents experienced.

  192. Mallrat on June 4, 2009 at 3:07 pm

    What I have not read in the posts is the following facts:

    1. You do not HAVE to lock in with any Group RESP company. You can choose to contribute anually with lump sum amounts of any amount you would like. Skip years if you like, contribute lower amounts in some years if you like….. etc etc. You still have to pay the fees.

    2. If you are locked in….. you can do a “conversion” after about seven years or so of the life of the RESP. In effect you “convert” the status of your plan from an “annual” let’s say to a “five year annual” plan. Your units will be paid up by then and you are free to leave the contract and continue on your merry way with a paid up RESP and other options available to you.

    I’m surprised Traciatim (with his impressive knowledge on the group plans) hasn’t mentioned this.

  193. CrazyFish on June 10, 2009 at 10:39 am

    Great discussion going on here.

    I would like to know if the following is a likely scenario:

    You optimize your plan to max the $50K as early as possible (by contributing an extra $16K in year 1 or 2) and then contribute the regular $2500 per year subsequently to maximize the CESG at $7200. Now let’s say five years down the road, the government increases the CESG to $10K, but DOESN’T increase the overall contribution limit from $50K to $64K (the extra $14K being the contribution amount needed to “get” the newly added CESG amount).

    So effectively by planning in advance you would have lost out on any new CESG money.

    Is this plausible or would they only increase the CESG if the overall RESP room was increased simultaneously by the corresponding amount?

  194. mallrat on June 10, 2009 at 1:09 pm


    Be careful. In self directed plans the maximum amount of grant you can get in one year is the $500. So that $16000 you contribute will only give you $500 that year. In group plans you can back date up to five years and get a max of 2 years worth of grant in any backdate.

    Hope that makes sense.

    As for your “what if” scenario… wish I could help. The Gov’t works in strange ways!

  195. CrazyFish on June 10, 2009 at 1:51 pm

    @Mallrat: Yes, I realize that. The $16K is money over and above what’s needed to max out the CESG so you’re not giving up on any grant money. Here’s an example of what I mean:

    Year RESP CESG
    1 $16,500 $500 ($2500 + $14K, not $16K, sorry)
    2 $2,500 $500
    3 $2,500 $500
    4 $2,500 $500
    5 $2,500 $500
    6 $2,500 $500
    7 $2,500 $500
    8 $2,500 $500
    9 $2,500 $500
    10 $2,500 $500
    11 $2,500 $500
    12 $2,500 $500
    13 $2,500 $500
    14 $2,500 $500
    15 $1,000 $200

    Total $50,000 $7,200

  196. CrazyFish on June 10, 2009 at 1:57 pm

    @cannon_fodder: Nice spreadsheet. Why did you use $45K as the total instead of $42K (old rules) or $50K (new rules)?

    Also, correct me if I’m wrong, but don’t the first few rows of your spreadsheet assume a CESG grant for each $2500 contribution? In the first 4 or 5 rows you would actually run out of grant money midway through year 14.

  197. George on June 11, 2009 at 2:58 pm

    Group RESP’s are the BEST. No fuss, no muss, just sit and watch your money grow without the headaches of the market.

  198. cannon_fodder on June 15, 2009 at 12:19 am


    I’ve taken down most of my spreadsheets from Google because there was no way I could see to make them useful and prevent them from being inadvertently modified which tended to break them.

    So, since you are a person after my own heart, you may be glad to know I have updated the SS.

    YOU can decide the maximum lifetime contribution…
    YOU can decide your annual contribution…
    YOU can decide how many years to run the scenarios…
    YOU can decide the maximum lifetime CESG.

    So, now it is a lot more flexible and I fixed the error you spotted. I had previously used the $2,000/year limit over 18 years and thus there would never have been a case to run out of CESG contributions.

    I’m going to be assembling almost all of the spreadsheets I’ve created and putting them on Canadian Money Forum.

    If you want to get an early preview of this one (even if it is only to check out to see if I’ve made any mistakes) please let Frugaltrader know and I’ll pass it on to him to forward to you.

    Thanks for the interest and the keen eye.

  199. joseconrad on June 30, 2009 at 3:24 pm

    Could some one provide a ranked list of RESP providers in Canada? I know there is Heritage , Manulife etc.. Who else? Who has the most cost effective plans?

  200. George on June 30, 2009 at 3:56 pm

    @joseconrad: Ranked by what criteria? Every bank and investment house offers an RESP, in addition to the half-dozen or so “group RESP” providers.

    The full list of promoters is available here:

  201. Novice on June 30, 2009 at 4:55 pm

    George, in response to: “Group RESP’s are the BEST. No fuss, no muss, just sit and watch your money grow without the headaches of the market.”

    Not entirely true. You don’t need a group resp to invest in GICs or a simple bond market, so can invest in them without paying a large fee for the privilege to do so (either on joining, or on exiting). Also, it’s not accurate to say that the headaches of the market won’t affect your money growth — how much are GICs paying? 1.5%? There’s market-related reasons for that, it’s not seasonality.

  202. novice on July 16, 2009 at 11:16 am

    I have to admit…. I do love group RESP plans. Their investments are not in GIC’s at all. They buy bonds in such bulk that their rates are usually better. I don’t have to worry about the volatility of the stock market. My best bet is the group plan.

  203. Novice on July 16, 2009 at 11:29 am

    Not sure who’s trying to fool who, but the ‘novice’ above is not the same Novice who posts on canadiancapitalist or mdj. Don’t you just love getting notified via email when posts are made?

    And for the record, I’d sooner invest in madoff than a group RESP. At least Madoff would admit he’s out to stick it to his investors now.

    To the scammer above: Also I’m counting on the volatility of the stock market for right now… my son is only 2.

  204. Traciatim on July 16, 2009 at 11:33 am

    Sure ‘novice’ . . . As long as your goal is paying far more than you should for some bonds, then you will achieve that easily with group RESP providers.

  205. […] are huge advantages to using RESPs, two of the most significant […]

  206. Whoyou on July 27, 2009 at 6:58 pm

    Excellent debate from both Group and Self-direct fans. I have a group plan with CST for my two kids. My son still have 6 remaining annual $2000 payments left. I will leave it with CST because 3200 interest income plus 3000 enrollment fee, total $6200 will be lost if I transfer it to self-direct RESP today. However I am thinking to do something for my 8 years daughter’s RESP with CST which I contribute $1050 annually only since 2002 as I bought a house in 2001 so budget is limited:

    Contributions Net of Plan Fees $5,308
    Canada Education Savings Grant $1,470
    Interest Income $950
    Enrollment Fees $2,000

    Current Balance = $9,728
    Details of Plan
    Plan Started 2002
    Contribution Amount $1,050.00
    Your Contributions are Made Annual
    Contributions Remaining 10
    Number of Units 10.000

    Option one:
    Transfer it to TD eFund RESP, I will loose $2950 (enrollment fee $2000 + Interest Income $950), and start a balance at $6778 at TD, then continue to contribute $1050 annually in next 10 years. I am wondering if TD account could catch it up when my daughter is 18 if I leave it with CST, say CST return is 4%, TD eFund return is 8%, I know the risk, it is not guaranteed, but…let’s say 10 years long run return and I am a lucky father. I know enrollment fee is not earning any income in CST.

    Option two:
    As mentioned in some posts, do a “conversion” and park the current balance in CST, and open a new TD-eFund RESP. Can somebody explain how to do a “conversion” as I cannot find it on CST website?

    Option three:
    Leave it with CST and pay 10 remaining contributions until 2018.

    I am not good at math, but as good parent as all of you. we do this for our kids to pursue their future without too much financial pressure when they reach 18.

    If you were me, which option you think is the good one.

    Much appreciated,

  207. Traciatim on July 27, 2009 at 9:02 pm

    Hey Whoyou, now that you are already in CST the best course of action is most likely to continue. It’s very unlikely that if you forfeit your enrollment fees that you would be able to recover in 10 years.

    If you have basically 10000 earning about 4% in safe investments now, and you instead want to forfeit 3000 (7000 left), then how much do you need to earn to ‘catch up’? It ends up being about 7.75%-8% or so. That would involve a huge amount of risk that late in the game, and what would happen if a year or two before she goes to school we have another 2008 in the stock market?

    I’m not usually one to recommend CST, but in this case I just don’t think it makes too much sense to jump ship now that you are this far in.

    My plan converted to an individual plan in CST just before I collapsed it. As far as I was aware, unless you pay out the units amount owning then you still use your enrollment fees, but I’m not certain on that one since my plan was being collapsed for other financial reasons. You may want to give their customer service line a call and ask how it works.

    Keep in mind you’ve done a great thing for your daughter giving her a head start that not a lot of other children will have. It’s a great gift that I’m sure she will appreciate.

  208. Whoyou on July 28, 2009 at 6:57 pm

    Thank you very much for your info, Traciatim.

    Actually, CST real average return is about 3.2%, which is far below 8.5% they use to calculate “Illustrated Maturity Value” of my 2008 statement. Buying bond with high MER, I am not optimistic that CST can provide return they projected to parents. Anyway, I think I have to stick with CST.

    Thank you again,

  209. […] house, I do it all. I pay all the bills. I track all the spending. I manage the investments, TFSAs, RESPs and RRSPs. I am not, however, controlling about it. I do it because I enjoy it and Brian is […]

  210. Alan C. on September 12, 2009 at 11:06 pm

    First and foremost, many thanks to FT and other contributors for this informative blog.

    I have experienced a significant gain in a RESP account (for our daughter), of which my wife and I are subscribers.

    Because of this, I’d like to confirm whether the below is still true or if the $50k amount transferable to a RRSP account is for each of the plan subscribers (meaning $50k each)? If $50k is max, can this $50k be evenly split between my wife and myself’s RRSP account or can we determine how we divvy it up?

    RESP funds can be transferred to an RRSP account (max $50k) if not utilized after it’s maximum lifespan.

    Also, for any leftovers in the RESP after the transfer of the $50k to a RRSP, is the entire amount taxed at the child’s hand

    1) once he/she graduates
    2) when the plan is folded after 25 (or was it 31) years

    Or can the withdrawal of the remaining amount be distributed across years in the child’s hands to minimize the tax consequences?

    Thank you.

  211. Suthida on September 20, 2009 at 4:36 pm

    If someone could help me. I like to set up RESP for my son self RESP with the less charge with any Financial Institution. Do you which one charge less fee if you start at $ 5000.00. I prefer stocks trade and not mutual funds. I am trying to find any information to compare between banks but it gets a bit confused.

    Thank you very much!


  212. […] decided to use the RESP program which allows up to 20% of your (after tax) deposit annually will be matched by the government, […]

  213. Mark on December 9, 2009 at 10:17 pm

    I would like to make a few comments to this post. First of all, I commend MOST of you for trying to help people. (whether I agree or not, most of you are trying to help your fellow man.) Some here shouldn’t be posting what they are, because misinformation hurts enveryone.

    I find it slightly amusing that no one has been jumping up and down lately about their RESP growth in the stock market. In post #167, Sabrina asked if people would post how their self-directed equity RESP was doing and no one took her up on it. (She was wrong on another point, though. If a child doesn’t go to school, (with a Scholarship plan) they can choose the Self Directed/Initiated option, and have the same options that a bank plan would allow. They don’t ‘lose their money’.) We all know that the market has taken a hit, and has done quite a few time in the past, so this is not really a surprise to anyone. Obviously, it has bounced back some, and we all hope that it doesn’t drop again, but I find it funny that people brag when it is going good, and shut up when going bad. It’s kind of like talking to a gambler – you will hear all about the wins, and nothing about the losses.

    I will let everyone know that I do work for a Scholarship company, and I really don’t want to post anything, but there are too many misconceptions out there for me to not say a bit. Here are a few misconceptions that I see thrown around.

    First of all, CST, Universitas, and USC have all been through quite a few plans in the past. What I mean by this is that when they want to make a significant change or improvement to their plan, they stop selling the current one, and create a whole new one. This is one of the reasons there is confusion about Scholarship plans. The children going to school right now are doing so under different rules than the plans being offered today. In order for people to talk about a plan, they have to make sure that it is the same company, and the same plan.

    Bonds and GIC’s. I see a common theme that this would be a better choice than a Scholarship plan, if safety is a concern. The most recent data I have is this. This is all sourced from Morningstar 07/31/09.
    Canadian Money Market Funds 2.5% (Average of all funds in category with a 10-year history.)
    Canada Savings Bonds 2.7% (Average rate of return over the 10-year period.)
    GIC’s 3.5% (Average rate of return over the 10-year period.)
    Canadian Bond Funds 4.6% (Average of all funds in category with a 10-year history.)

    The actual returns for the three main Scholarship Plans are as follows: (and this is after fees, not before)

    CST 4.5% (their plan is still newer, so I only have their five year average.)
    Heritage 6.15% (this is their ten year average)
    USC 5.93% (this is their ten year average)

    I would have to say that most of these look quite good compared to the other ‘safe’ options out there. Even when you factor in the membership fees that are taken at the beginning, these would nicely outperform. Because of the differences that in these investments, I strongly believe that the scholarship plans will significantly outperform the other safe options out there. Some are even participating in Principle Protected Notes, that are able to get the benefit of the stock market, while still protecting the principle. In the future that should help make Scholarship plans even more attractive than they are today. I consider the return of membership fees, and money from attrition to be just an added bonus.

    Another beef I have is with Scholarship reps saying things that aren’t true. I think that this is the biggest reason that our industry has people saying what they are on forums such as this, is the sales reps. As you can see from others who have posted here, a lot of people really like the Scholarship plans. What happens is that because it is an ‘incentive’ based industry, there are some bad apples out there. That is what a lot of the confusion, and bad feeling stem from. People not being told up front, all of the facts. If they had, maybe they wouldn’t have invested, or if they had, wouldn’t feel bad now. (eyes wide open kind of thing) I personally have what is considered a ‘bad’ closing ratio. Not everyone I sit down with signs up. I pride myself in this, because I tell the whole story and the people who do sign up, like it. Obviously, people who are really happy with their RESP aren’t searching the internet for ways to tell people about it. One hundred satisfied customers might collectively tell one person – one unsatisfied customer might tell 100. (here I am not pointing any fingers ?)

    I read a comment by a rep that said a portion of the membership fees are kept, invested, and income is used to refund the membership fees later on. That is 100% untrue, and is indicative of the sales techniques that tarnished the industries reputation. I can personally say that I have heard people tell me things that, even now, surprise me. What some sales reps will say and do to make a sale saddens me. Most of what I have heard, if documented, can get a sales rep’s license taken away, but most people don’t want to come forward. I wish they would because I would like to deal with facts, and not have people preying on parents’ ignorance and emotions.

    Another thing that bothers me about these posts it the assumptions that everyone has the same risk tolerance, that we all have the same abilities to manage our investments, that we even want to, and if we don’t want to go that route, we should just buy GIC’s. The pat answer seem to be “Invest like we do, or buy GIC’s.” There are many products out there, and not one is a perfect fit for everyone. I personally have sat down with accountants, bankers, financial planers, and lawyers. They have chosen our product. Most of my clients have financial planners (admittedly they are harder to talk to, as their FP keeps them well insulated from competition. ?) or investments at banks. When it comes to their children’s savings, they prefer to have it safer. Many people, while still investing in it, have been burnt at least once by the stock market. Most know that it is a waiting game, and that ‘market timing’ is difficult.
    Another thing I see posted that is incorrect, is the fees of the Scholarship plans. Some people have posted that they are as high as 5%. Others say 1-2%. They also mention all of the scholarship plan fees, and then say that there is also a MER. This is a common misconception that the banks like to share. They lead people to believe that the scholarship plan is just like the mutual funds that they push, except that the scholarship plan has this added membership fee. This leads people to wrongly (most probably) assume that the banks total fees will be less. Also, I have heard mention that if someone doesn’t want to pay fees they can go to the bank, open a RESP and invest in GIC’s. This gives people the assumption that the bank is doing this just to be nice to them. If they give the people 2.5% on their GIC and lend the money out at 7% to some one for a car, they are making more on the money than the investor is. I am not going to slam banks, but I don’t want them to be able to let people invest without full information.

    I am quite concerned that discussions like these will lead some people to just ‘put it off’ as they plan to research. Then they never do anything, or just throw their hands up in the air and go to their bank. (The majority of the people I talk to don’t know a thing about bank fees, and think that banks make money is some way that doesn’t involve them – lol)

    To end my story, I have been investing for my son for over 7 years and for over 5 years for my daughter. I started her after I started working for the Scholarship plan. I have done a lot of research, and I do prefer one plan over the others, as there are differences, but most of them are a better choice than the banks. I personally like the ‘forced saving’ aspect of the plan, as I am sure that I would have ‘turned off’ my contributions had I been Self Directed. Not sure when I would have started up again. I have family that have done nothing, I have family that has had a financial planner advise them to pull out of a scholarship plan (not the one I represent, and before I started with them), only to find the FP was bad, and they now have no savings for their children’s education. No mater where you go, you will find good and bad. As for me, I love the scholarship plan that I am in, and would advise it for most people. Only time will tell who ends up with more, but that is only part of my goal. I don’t want to lose any sleep over it.

    Feel free to email if you have any question.


  214. Geoff on December 10, 2009 at 12:11 pm

    Mark, thank you for your interesting information.

    I have a few questions / comments:

    1) Is it true that if I miss a few payments on a scholarship plan, my entire account may be forfeited?

    2) Given that you’ve heard sales reps make fraudulent statements, how many have you reported? What happened to them?

    3) You imply that a scholarship plan is the only means of a ‘forced savings’ when that can be achieved just as well by an automated payment system run by pretty much anyone, including banks.

    4) My RESP with TD efunds (couch potato classic, 80% equity/20% bonds) was started in Dec 2008 with $2500 and then over the past year I’ve put in just under another $2500 (one more biweekly payment to go). It’s current value is $6,569. Part of that is the 20% bonus from the government, and though I don’t know how to calculate it correctly (anyone?) I think that’s about a 4.63% annual return outside of the government grants. Can you tell me what my available account balance would be, if I made a $2500 investment in your scholarship plan in Dec 2008 and $2500 spread out over the past year as well? (so I paid $5000 total)

    5) Market timing is indeed quite difficult, but I’m confident that most of the major companies that are around today will be around in another 16 years (my son is 2) and I plan on withdrawing funds when he turns 13 into more safe bond/gic investments, eliminating that risk while receiving dividend payments for the next 11 years. Education costs are going up faster than inflation, and I’m willing to take on some risk to avoid that as playing it safe is also risky but I agree it’s a personal choice.

    Looking forward to your answers, especially to #4. Please include details of which particular plan you chose.

  215. George on December 10, 2009 at 12:51 pm

    @Mark: You seem to be advocating the group scholarship plans as some sort of guaranteed, or as you put it, “safe” investment that earns at least 4.5% in today’s environment. That appears to be at least a couple of percent higher than most GIC rates, so where does the extra return come from without adding risk?

    As far as my self-directed RESP investments, I’m quite happy with their performance – they are doing exactly what I expected them to do – ride the stock market’s ups and downs. I still have 16+ years before those funds will be needed, and I’m perfectly happy to accept the potential for market losses in some years (i.e. 2008) for the potential long-term gain that exceeds inflation (i.e. most of 2009). My oldest child is 4, and the RESP account balance is nearly $20k.

    I really don’t like the “forced” savings aspect of most “group scholarship” RESP plans – As Geoff notes, what happens if you are unable to make some of the contributions?

  216. Geoff on December 10, 2009 at 5:58 pm

    @ George – I think part of the answer in that 4.5% return is what they euphemistically call ‘attrition’ — the monies confiscated from the accounts of the people who miss a payment or drop out. I’m not sure what the moral compass of those who run these funds are, but I find that very distasteful. I don’t want to son’s education fund to prosper simply because my neighbour’s are divorcing and can’t afford legal bills and plan payment and couldn’t predict their financial situation 10 years ago when they started.

  217. Geoff on December 11, 2009 at 1:06 am

    Mark, I’m confused.

    On CanadianCapitalist you post this:

    “So to the post that Kruller made on Sept 21, 2009 – the CST plan which that family has probably won’t pay unless it is a 4 year University program. (and that can be CST’s definition, not the governments) There may be other restrictions as well. (I am guessing a bit, as I don’t have the prospectus for that particular plan in front of me.)”

    But here you write:

    (.. If a child doesn’t go to school, (with a Scholarship plan) they can choose the Self Directed/Initiated option, and have the same options that a bank plan would allow. They don’t ‘lose their money’.)

    I don’t get how someone could not their money for going to one school instead of another, but get it for not going to school at all.

    I remain confused. What happens if (a) I stop contributing to a scholarship plan or (b) my son doesn’t go to a 4 year university plan?

    I know with my td efunds account if I want to suspend contributions, I just go online and choose ‘suspend’ and it’s done. Funds still grow, penalties don’t exist and they go by the government rules.

  218. Mulletman on December 15, 2009 at 12:35 pm

    Hey folks,

    I can’t figure out why everyone is getting hung up on “missing contributions” on a group plan. If you choose the lump sum option (as I have) you can make payments of any amount whenever you want. Seems like a no brainer to me.

    Even if you get stuck in a contracted contribution schedule, you can always convert after about 7 – 8 years which would pay the units up on the scholarship plan. You are then free to do what you please.

  219. Mark on December 15, 2009 at 4:16 pm

    Well, I guess people have read my comments. ?

    First of all, I want to state and reiterate some things. I did not comment on these discussions because I was trying to convince the people who didn’t like scholarship plans that they should. I only wanted to correct what I saw as some common misconceptions. I don’t think people are on here deliberately trying to mislead people, but if there is info here that is untrue, that could be the result.

    Secondly, I mentioned elsewhere that some of the Scholarship plans have had many plans throughout their life. I think some people still don’t understand what that means. Maybe I wasn’t clear about this, so I will repeat. Some of the companies will have children going to school right now with an older plan. This plan will have different rules and benefits than the plan that that same company is marketing today. This is one of the reasons there is such confusion about Scholarship plans, and why these boards can sometimes confuse. This is why I say that people should look in the prospectus, not ask people on the internet, as their answer might be wrong.

    There are two other things that I see repeated that need to be corrected. First, the ‘lumping’ of all Scholarship plans together. There are a few, and there are differences among them. There are two that I honestly don’t like. I try to keep my comments as general as possible, for a couple of reasons, but that does not mean what is true for one company is true for all of them. It pays to do some homework.

    The last thing that bothers me is the comparison of GIC to Scholarship plans. I don’t know who started it, but it really is annoying. The question should be ‘why are the banks giving such low returns on GIC’s?’, not ‘How come Scholarship plans can consistently beat them?”. Read the prospectuses.

    Again, I know that Scholarship plans are not for everyone. I have no problem with that, and I am sure most people don’t either, so please keep in mind that your choice of investment might not be their cup of tea either.

    Again, keeping to generalizations as each company is different, Scholarship plans have lots of options if there are financial problems. Call them and ask what options are available in each situation, or look in their prospectus.

    In order for me to ‘report’ a rep saying something that is fraudulent, they would have to say it to my face. Other than that it is hearsay, and I hear a lot of it. I always ask people if they would put it down on paper, and most of the time they won’t. Twice I have forwarded a complaint on, once it was dealt with. That is why I always tell people to document and report something they feel might be wrong. (I hope that question wasn’t intended to imply that I sit by while people are out there misleading people. I have written my Provincial ministers, and the SEC, asking that something be done. (I have also mentioned that MER’s be looked at, as banks do not consider them fees, and tell people that there are no fees for their investments.) The only way that snakes will be caught is if people report them.)

    I didn’t mean to imply that a Scholarship plan is the only means of ‘forced savings’, but it works for me. I started when my first child was 9 months old. For nine months I told my wife I was going to research, and didn’t. I eventually let a RESP person into my house, (after many phone calls) and started a plan. I knew I had 60 days to think about it and change my mind, (much better than any other investment out there) so I read the prospectus and liked it more, the more I read. I started with a monthly amount equal to our cable bill. I figured if times ever got tight, I would cut the cable, and I haven’t had to. I have consistently increased my contributions, and now wish I had started with more, but that is life. Previously, I have started a term deposit GIG, and a term deposit RRSP, so I knew that option was there. Thing is, I cashed my term GIC before maturity (no interest, how immoral of that bank – lol) and pulled out my term RRSP when I needed the money. (Oh yeah, I knew how to turn the PAD off, all too well.) When I understood the Scholarship plan, I liked the ‘forced savings’ aspect. As I said, there are a lot of options if I have a financial mishap, but until then, I am making my contributions. After I started with the company, and knew them even better, I started a plan for my second child. Believe me when I say, and you may not be one of them, but there are a lot of people who like scholarship plans, with their eyes wide open.

    As to the comparison questions, the group resp’s are front end loaded, so that a two year comparison would be quite slanted. I prefer to compare ten year returns – call then. I appreciate that you might be very happy riding the roller coaster with your child’s money (why have 20% bonds now, btw?) but some people aren’t. I appreciate that you are confident that you will have X amount of money when the time comes, but there are some people who don’t want to take that risk with their child’s savings. Lots of people are aware of what has happened in Japan, and know that the market isn’t a guarantee, and that they might even lose money. I talked with a fellow last night, and his major concern was not losing principle. (I hear this all the time.) He is getting almost no return right now in a bank GIC, and he was okay with that. Again, it is a personal choice.

    Another thing that bothers me is when people don’t know the answer to a question, so they assume the answer. That is fine in your own head, but once it is posted, it might mislead someone else. The returns that I have posted for the Scholarship plans are without any attrition. Like I always say, the return of membership fees and attrition are bonuses for the children if they go to school. Even before all the extras, the scholarship plans outperform because they are actively managed funds. (Contrary to another post that I have seen.) There are a lot of options for people who need to change their contributions.

    Find out what happens to your growth, and grants if you need to close your bank RESP and pull all of the money when the child is 8 years old. Tell the bank that you need the interest because you have legal bills. Tell them if you don’t get the growth it is ‘immoral’. Scholarship plans have lots of options if a financial hardship occurs.

    To post 222:
    Again, I was discussing two different plans. One was already mature, one is being marketed today. Different rules. I will say it again. Some Scholarship plans have had many plans over the years. (not all) Don’t compare what a child is experiencing now, with the plan that is currently being marketed. Check the current prospectus for all the ‘what ifs’. I hear it all the time. “My aunt’s, uncles, cousin’s son is going to school and XYZ”. That might not be true of the plans currently being marketed. Again, I like people being able to make their decisions on facts.

    As well, like Mulletman has said, people can always choose the lump sum plan. What I encourage is that people open a reasonable (and I always coach people to choose a lower number) monthly or annual plan, and also open a lump sum plan. Then they make their normal contributions, and when they want, they can add additional money. Most of the time they love the idea, ask me to call later, and when the time comes, they have adiffernt obligation. Something came up. But guess what, they are still making their regular contributions, are happy with that, and their child will have the money when needed. Having $50,000 is better than having nothing. Trust me when I say that these people, like me, love the regular contributions.

    I talk to a lot of people with 2-8 year old children, and they have started a plan at the bank. Put in money for a while, then ‘suspended’ the contributions. Good intentions – lack of follow through. The money is always needed elsewhere. I personally have been putting off buying a couch, car starter, and many other things, but am always putting money in to my children’s RESPs. Basically, they don’t have much in it at all. I talk to people who will start a plan at a bank, and then ‘realize’ that they can’t afford it.

    Again, the purpose of my posting wasn’t to ‘win’ people over, just to ensure that accurate information was being posted. I just talked to a lady who decided to go with the bank. (Fort the record, she never sat down with a scholarship plan person) Did she go with the bank because the bank was better? No, she ‘chose’ the bank by default. The talked to Scholarship plan people at a trade show – some of them slung some mud around. She talked to some friends, and they all told her different/conflicting things. She knew she had to do something, so she went to the bank. Funny thing is the bank didn’t properly explain how their RESP worked. There is some ‘buyer beware’ out there, no matter who you are talking to.

  220. George on December 15, 2009 at 4:36 pm

    @Mark Since much of what you write is just a reiteration of your earlier comment, I won’t respond to most of it. I did notice one thing that bears highlighting, though. You write: “Even before all the extras, the scholarship plans outperform because they are actively managed funds.”

    This strikes me as a little bit odd. You claim that you want to ensure that accurate information is posted, but you also make a brazen claim that because a plan is “actively managed” it must outperform.

    This claim is, unfortunately, just plain false. On average, an actively managed fund will underperform a passively-managed fund. Yes, there will be actively-managed funds that outperform in some time periods, but over long timeframes it is a sucker’s bet to try to outperform the markets.

    For more information I suggest you read this paper – it’s nearly twenty years old, but the information it contains is just as relevant today:

    In particular: “If “active” and “passive” management styles are defined in sensible ways, it must be the case that
    (1) before costs, the return on the average actively managed dollar will equal the return on the average passively managed dollar and
    (2) after costs, the return on the average actively managed dollar will be less than the return on the average passively managed dollar
    These assertions will hold for any time period. Moreover, they depend only on the laws of addition, subtraction, multiplication and division. Nothing else is required.”

    Put simply: Costs matter. Active management costs money, and will apply whether you’re referring to an actively-managed mutual fund, RESP scholarship plan, or any other investment.

  221. Geoff on December 15, 2009 at 5:03 pm

    @ Mark – it’s not fair to ask people how their bank RESPs are doing (post #218) , and when you get an answer, to not tell me how much I’d have in your firm’s account, given the same information and amounts contributed.

    I think it’s because you don’t want to write out that in my bank fund I have $6569, and if I went with your company I’d have… $4,000? I can only assume it’s a lower number.

    You do say that your fees are front-end, does that mean that there are $0.00 fees (including mers) after these are deducted?

    As for mulletman’s advice above: “Even if you get stuck in a contracted contribution schedule, you can always convert after about 7 – 8 years which would pay the units up on the scholarship plan. You are then free to do what you please.” — what if you run into trouble BEFORE year 7? It happens. That’s not a solution. With my current efund account, I just stop contributing, no harm, no foul, no one gives a darn.

    Lastly, what I keep hearing, from salespeople and customers of group plans, is how they offer different (read: fewer) options than bank programs, have large penalties, require more documentation to get funds out than a regular program, bury fees, make misleading statements, seem to hide information, etc. And I have to tell you, the concept of ‘earnings from attrition’ I find repellent on a moral and ethical level and I think attrition is doing a lot more of the heavy lifting of having a higher payout than ‘actively managed’ investing is.

  222. Mark on December 16, 2009 at 2:13 pm


    I will reiterate that I am not here to convince you. Your mind is made up. I get it. Don’t need to keep hammering that in.

    I do post accurate information, and numbers to back it up. George, feel free to not respond to any, or all, of my comments. Just respond to the parts that you don’t like, I get it. In regards to your comments, I would argue that you are posting opinions (might be right, might be wrong) without numbers to back it up. I am aware that actively managed funds 80% of the time do not beat the index they are measured against. The other 20% do. There are a few managers out there that are worth paying the fees to, it just takes work to find out who they are.

    You posted an article, and claim that it proves that all actively managed funds cannot beat the market. It doesn’t. I quote:

    Over any specified time period, the market return will be a weighted average of the returns on the securities within the market, using beginning market values as weights3. Each passive manager will obtain precisely the market return, before costs4. From this, it follows (as the night from the day) that the return on the average actively managed dollar must equal the market return. Why? Because the market return must equal a weighted average of the returns on the passive and active segments of the market. If the first two returns are the same, the third must be also.

    This is true, but it makes a slight assumption that is hard to catch. Because it lumps all ‘active managed dollars’ of the market into the grouping of ‘actively managed funds’, right here it lost my support. This doesn’t take into account any other investors in the market. Also, even taking that obvious omission out, it also stands to reason that 80% of the actively managed funds could under perform, and 20% could over perform, giving a weight that would equal, (together with the passive money) the average of the market. This in no way proves that some funds cannot provide better than market returns. Your post seemed to claim that was the case.

    For the record, I only brought ‘actively managed’ into the picture, because some people kept comparing us to GIC’s, and that our returns should be expected to equal that. I only brought it up to refute that claim, and I have done so. I am not here trying to tell you to take all of your money and go get a financial planner. I believe everyone should do what is comfortable to them.

    I never asked how people’s bank funds were doing, I only commented that someone else had asked, and I found it amusing that people weren’t jumping up and down about their returns, like they were a few months ago. (I still note that at the time of her post, it is amusing that no one spoke up.) I am glad that your savings have done well – I am not here to convince you to do anything you are not comfortable with. I would say that you must be a savvy investor, as with an 80% equity and 20% bond mix, you seem to be doing much better than others right now.

    As to your comment about comparisons; you seem to be implying that I have somehow tried to hide the fact that the membership fees are front end loaded – please reread my comments and let me know if that is true. Other than that, please quit harping about it. I haven’t hidden it, and don’t feel like talking about it in each post. I am not here to argue, only to ensure that accurate facts are able to be read.
    (Also, I don’t want to disclose who I represent for legal reasons. Normally, a Scholarship plan sales person can only be licensed in one province, and this can be read right across Canada. As well, being licensed, I have an obligation to make sure that the information I give is 100% accurate. Anyone else here can post that the sky is green and the moon is made out of Swiss cheese. I have to make sure that none of my statements can be misleading in anyway. While at the same time, I still have a personal opinion, and I want to say it. If I were to say what company I worked for (by mentioning balance/return numbers that only someone internal could know) I am in essence revealing that info.)

    Also, again with the assuming: “what if you run into trouble BEFORE year 7? It happens. That’s not a solution.” Obviously you are implying something – if you want to know what each plan has for options, call them or read their prospectus. Quit assuming that, “If I miss one/a few contributions – I lose all my money.” It is probably not true, but it seems that a lot of people here like to repeat that. What if I get a seven year ladder GIC from my bank and need the money now. AAAAAhh – I will lose money. Crap – I wish I never got into this GIC – the bank is evil, etc, etc. A cell phone contract is 3 years, for goodness sakes – I still see a lot of cell phone out there. I get it – you don’t like the obligation – you don’t like attrition. Point made, no need to repeat.

    As far as options between a group plan and a bank plan, a group plan probably has MORE options. (get that – the opposite of fewer) (I say probably because I obviously cannot speak to each scholarship plan, but assure you that at least one has more options than the banks.) Unless you have read each companies prospectus, and fully understand their options at maturity, I would have to say that you are GUESSING. When it comes to fees, I would argue that Scholarship funds are much more upfront about their fees than most other investments. (Check into the status of the ‘one page’ information sheet the SEC is trying to impose on the investment world. See who is fighting it – banks and mutual funds, or Scholarship plans. We aren’t, because we already disclose all fees.)

    I mean:
    “offer different (read: fewer) options than bank programs, have large penalties, require more documentation to get funds out than a regular program, bury fees, make misleading statements, seem to hide information, etc.”
    No mud or opinion there. lol

    Again, please find out from your bank what happens if the conditions for an EAP or AIP are not met. Please post your answer here.

    Let’s please keep this conversation civil. I am not trying to convince you of anything, I won’t knock your decisions for your family. I understand that your opinion is very set, and I have not desire to change your mind. There is no need for you to keep objecting to the same points that you don’t like. I get it. You will (probably) not (although I always keep an open mind) convince me of anything, so no use in trying.

  223. Geoff on December 17, 2009 at 12:44 pm

    Mark, I don’t get your post, nor do I think anyone here acted without civility. I am simply saying that I am very confused by the scholarship plans out there, and that rather than simplifying them, your posts have left me more confused.

    As for your comment here: “What if I get a seven year ladder GIC from my bank and need the money now. AAAAAhh – I will lose money.” No, you will lose your interest that you would otherwise have learned, but I get back every dollar I put in. Everything I’ve read,

    As for the rules for EAP/AIP, here’s two guides that I was able to find in seconds online.One from bmo,2284,35649_24160437,00.html and one from cibc

    As for fees, Canadian Capitalist said it best: “The total impact of all the fees on a group scholarship plan is of the order of 2.15% (1.25% for the impact of the enrolment fees and 0.9% for other fees). While that compares favourably with high-MER mutual funds, it is certainly not 3 times cheaper. And parents have a much better option than having to choose between Tweedledee and Tweedledum: they can walk down the street to a TD Canada Trust branch and open a RESP account and invest in TD e-Series mutual funds for a total cost of less than 0.5%. Now, that is more than three times cheaper.”

    And finally, I really would love to know the $ amount I’d have left in your unnamed group scholarship fund.

    It’s really not fair to say that I’m not listening or open to ideas. Read my posts (under Geoff or Novice, I’m trying to lose the ‘novice’ name now that I’m getting more saavy) and I like to think they’ll show someone who’s more open than you think to good logic, and open discussion.

  224. Geoff on December 17, 2009 at 12:47 pm

    sorry I left off a part on my gic comment – “everything I’ve read about group plans suggests that I will in fact lose at least a portion of my principle” in that exact same scenario.

  225. mulletman on December 18, 2009 at 4:57 pm


    If you get in trouble before 7 – 8 yrs, just dial down the amount of your obligation. You can put as little as $5 per month. That, certainly, is not a hardship. I am just stating that there are options here and not go get all hung up on contracted obligations in a group plan.

    As for pros and cons of group vs. self administered RESP’s, I’ll let the rest of you duke it out…. I can’t wait to when it gets to whose father can beat up whose……

  226. mulletman on December 18, 2009 at 4:58 pm


    If you get in trouble before 7 – 8 yrs, just dial down the amount of your obligation. You can put as little as $5 per month. That, certainly, is not a hardship. I am just stating that there are options here and not to get all hung up on contracted obligations in a group plan.

    As for pros and cons of group vs. self administered RESP’s, I’ll let the rest of you duke it out…. I can’t wait to when it gets to whose father can beat up whose……

  227. Geoff on December 18, 2009 at 5:54 pm

    @ Mulletman – I love typing that name out by the way – yes I agree that $5 a month is probably not a hardship. However, if I’m unable to pay my mortgage, maybe that $5 is a hardship afterall. To you and me it might not be much, hand a $5 bill to a homeless person and it might mean living another day.

  228. mommy j on December 10, 2010 at 6:21 am

    hi i have had someone come to talk to me about resp for my little girl …. canadian scholorship trust fund, IAP (industrial alliance pacific), and childrens education fund and USC so confused which to pick sounds like CST has lots of negetive reviews anyone know anything good or bad about the others listed i have to decide quickly what to do

  229. George on December 10, 2010 at 10:17 am

    @Mommy J – you most definitely do not need to decide quickly for ANY investment. If somebody is telling you that, they’re trying to pressure you into making a rash and unwise decision.

    Many people defer putting money into their children’s education savings until it’s far too late, such as when the children are in high school. Even if you’re in that situation, there’s no reason to rush into an investment decision.

    If you’re not sure how to invest the money, my suggestion would be to go to your bank and open up a plain self-directed RESP. The bank can walk you through the paperwork (it isn’t that bad). Ask that the money simply be placed into a money market fund for the time being. It won’t grow much, but it’ll allow you to get into the savings habit. Start putting a set amount every few weeks into the account, and while you’re doing that you can research what other RESP options you might choose. You can always transfer the money from there to another RESP account.

  230. JJ on January 3, 2011 at 11:18 am

    Hey, i have a URGENT question. IF your child does not graduate highschool the regular way, but instead decided to take the GED testing, could you still use the RESP with a GED diploma instead of a highschool diploma?

  231. George on January 3, 2011 at 12:00 pm

    @JJ: You can find a list of qualifying programs and terms here:

  232. Ed Rempel on January 3, 2011 at 10:01 pm

    Hi Mommy J,

    UST and CST are scholarship trusts, not regular RESPs. They have a lot of potential restrictions when it comes to taking out your money. If you child does not follow all their rules, you could lose all 18 years of growth of your investments. I would not advise using them.

    IA is a mutual fund company with a regular RESP, but they tend to stick people into their Diploma fund that pays their salespeople far more and has huge penalties to get out of. I would not recommend them either.

    Most major mutual fund companies offer an RESP. Your time horizon is less than with your RRSP, so it is usually best to stick with a broad-based investment. If your oldest child is under 10-12, then it is probably best to have it mostly or all in equities, depending on your risk tolerance and experience with investing. Most often, a high quality global fund provides the most diversification and growth opportunities.

    There is no need to try to make a major investment decision. One good qualify diversified investment can be fine.

    This is an area where getting some professional advice can be worth it. There are multiple grant programs available, depending on your situation. There is an important discussion about how much to save. Do you want to pay for tuition and books only, or also living expenses? You probably want to support your child, but studies show that the more money you give your kids, the poorer they will be later on in their life. Structuring it so that it is a valuable learning experience for your children is probably more important than how much you actually save.


  233. Ed Rempel on January 3, 2011 at 10:09 pm

    Hi JJ,

    No problem. As long as your child is doing a post-secondary education program that qualifies, having a regular grade 12 or GED should make no difference.

    Here is a quote from CRA about qualifying programs:

    “A qualifying educational program is an educational program
    at post-secondary school level, that lasts at least three
    consecutive weeks, and that requires a student to spend no less
    than 10 hours per week on courses or work in the program.
    A specified educational program is a program at
    post-secondary school level that lasts at least three consecutive
    weeks, and that requires a student to spend not less than
    12 hours per-month on courses in the program.
    A post-secondary educational institution includes:
    ? a university, college, or other designated educational
    institution in Canada;
    ? an educational institution in Canada certified by Human
    Resources and Skills Development Canada (HRSDC) as
    offering non-credit courses that develop or improve skills in
    an occupation; and
    ? a university, college, or other educational institution outside
    Canada that has courses at the post-secondary school level,
    as long as the student is enrolled in a course that lasts at
    least 13 consecutive weeks. ”


  234. cannon_fodder on April 13, 2011 at 7:50 am

    Any chance we could get people’s experiences of withdrawing money? We only have the horrors that Isabella (post #120 or thereabouts) years ago.

    This September our oldest daughter will be off to college and I’d like to understand if the challenges are still out there for removing the money. Does the money get transferred into the child’s bank account or does a portion get assigned directly to the school the child will be attending?

    What if the EAP isn’t sufficient to pay for the entire year’s tuition? Can the additional monies be withdrawn during those first 13 weeks? (The link to the CRA site previously quoted is broken.)

  235. Dave on November 29, 2011 at 2:30 pm

    Scholarship plans are not for everyone, but can be very useful for the majority. When making a decision for your childs future, proper financial planning with a licensed Advisor would be an asset. Dealing with a licensed advisor that is also licensed with a Scholarship Fund would be able to answer all question and deal with any future concerns you may have. Please remember that there are fees in every form of investment, RESPS, Mutual funds, Segregated funds etc.
    Dealing with a Financial advisor will consider your financial postion today and help paint a picture of your future financial postion and help direct you accordingly in regards to which type of plan you should opt for (Scholarship or mutual funds)

  236. Frugal_Rock on December 17, 2011 at 1:06 pm

    I have a question that I don’t see asked in previous posts.

    My wife and I plan to open an RESP for our child. The child’s grandmother would like to open a second RESP for the same child. Assume that parties contribute $2500 each year, for a total of $5000. We know that only $500 will be contributed by the government. The question is, how do we determine which account will get the CESG payment? We naturally want the matched portion to end up in our RESP account.

    Similarly, what if each party contributed $1250 per year? Would each account receive CESG payments of $250?

    Maybe I’m missing some key information, or thinking of this the wrong way.

    Does anyone know how this works exactly?

  237. BW on January 27, 2012 at 6:23 pm

    First off, I have to say what a great site this is…very happy to have stumbled across it. I’ve been reading a lot of the posts and comments, and have learned quite a bit, but there are still a couple of questions I have about RESPs.

    I know that I’m starting a bit late (my daughter is 9), but I figure I have about a 10 year window to try to get some money growing for her post secondary education. Here’s what I was thinking of doing (and please let me know if you think this isn’t the best idea – I’m open to suggestions!). I have about $30,000 that I would like to invest in 1 or a few income generating ETFs which have distribution yields of around 6-7% (for example, Claymore Canadian Financial Monthly Income ETF – TSX:FIE). I would set up an automatic DRIP and hope that the investment might be able to grow at a modest annual rate of 6%. Here are some questions I have in regards to this plan:

    1. Should I register this fund in an RESP? I realize that I would forego the dividend tax credit, but tax information given by this fund states that 93.5% of the distribution is made up of ROC and only 6.5% are eligible dividends, so there really wouldn’t be much of a tax credit. I’m thinking that registering it would be the best idea.

    2. If I do register it in an RESP, would the dividends and ROC which are automatically being reinvested each month count as ‘official’ contributions in order to qualify for the CESG each year? Or would I have to make separate contributions each year out of pocket to qualify?

    3. Do contributions still count for the CESG if they are made during the time she is attending the post secondary institution and has already withdrawn from the plan?

    4.I realize that because most of the distribution is ROC, this will accelerate the capital gains, as it will decrease the adjusted cost base of the investment. But will all capital gains, dividends and ROC be taxed the same for my daughter (at her lower rate) when she withdraws the investment for post-secondary education?

    Thanks in advance for any thoughts or answers!

  238. Istvan on January 30, 2012 at 12:54 pm

    WARNING: for those of you who have modest income and larger families and live in Ontario: If you think your child will receive OSAP (there is an aid estimator on the OSAP site) please be advised that RESP EAP’s are reducing the amount of non-repayable grants that your child will receive….What is really sad is that any RESP principal withdrawal is considered income for OSAP purposes (see footnote 33 line 850 of the OSAP aplication on page 11). This means that although this withdrawals are not taxable, the Ontario governement reduces your grants by 15-25% of the withdrawal…THIS WIPES OUT ANY ADVANTAGE THAT RESP’S HAVE. In conclusion low income, large family: it might not worth the effort, the fees, and the risc

  239. Deepak on April 24, 2012 at 11:22 am

    A word of caution to all parents who have their RESPs invested in equity based funds – the markets have reached and surpassed their 80 year cycle – we are going to enter a new cycle where stocks are going to head lower. Please reconsider your investment choices as this could have a huge impact on your RESP accounts.

  240. George on April 24, 2012 at 8:58 pm

    @Deepak Somehow I don’t think I’ll trust random speculation about market direction from comments on a web site. Last I checked, nobody has a reliable crystal ball.

  241. jet on May 29, 2012 at 1:11 am

    Deepak I think your timing is very close but I think if you take the interday high that was made in 2000 & the interday high made in 2007 in the dow & draw the upper line for the jaws of death pattern lower line would be the 2002 low & the 2009 low. The market (dow) will most likely touch the upper line before “THE TOP” is in. As in 1929, 1987, 1974, 2000,2007 the market touched the upper trend line of the rare jaws of death pattern before the crash. This is the largest jaws of death pattern I have ever sean going back to 1896 in the dow.

    As for RESP accounts I think they are the worst investment anyone can make. Let the child take responsibility for themselfs,You save your money & send your kid to school & they will not respect the money they will spend money like water i.e., have a cell phone, not cook thier own food, drink, not work for a little extra cash in thier spare time, instead run up their credit card because they have less understanding of how hard it is to obtain money when it is given to them. ( dont give them a fish but show them how to fish & let them catch their own)

    A lot of times it is not even practical to speculate in education & right now I think it is one of the worst investments because education is in a bubble everyone thinks its a good investment & the amount of debt created by getting an education is dangerous just like a high level of debt in any speculative investment is dangerous. Like any investment buy it when everyone thinks its a bad investment.

    Most think thier kid or kids are differnt & wont let thier kids make it on thier own but almost everyone is wrong. Sometimes it is best to teach your kids early about money & let them get burned so they respect money sooner in life.

  242. Jerry on July 24, 2012 at 10:41 am

    I contributed $6000 each year for my three children’s RESP.
    can I reduce $6000 from my income tax?

  243. Scott on July 24, 2012 at 1:19 pm


    You don’t have kids do you. Bottom line is you can get $7200 from the government. I don’t see free money has a bad investment.

  244. Traciatim on July 25, 2012 at 8:09 am

    Jerry: No, you can’t.

  245. J.R.Lafrance on December 12, 2012 at 12:17 am

    With a RESP, you lose control of the money and that might be very important in some situations. I have had RESP for my 6 children and my 12 grandchildren. A maddening scenario is developing here. One of my daughters has split with her husband and the daughter has taken side with her father and is not talking with her mother at all. She is getting 5K of RESP payments yearly from CST and is not even uttering a thank you for it.
    My intention in setting those up was to help my daughter with her child`s education, not my granddaughter directly. Her education is 15 K. According to Ontario`s courts, it is to be divided 5K from the father 5K from the mother and 5K from the student. If I had it my way the 5K from CST would flow through my daughter and the estranged husband and the estranged daughter would each pay 5K. BUT, the court sees it as her money, so she can afford to not work in the summer and my daughter still has to pay her 5K. I have no control over it and it drives me crazy.
    I am considering cancelling all 5 remaining plans but that would entail big losses. Another option is to shift the beneficiary for her 2 remaining children to another daughter`s children and helping the separated daughter directly with other funds later. What if other separations occur!! If I was to start again, I would keep my options open and NOT take RESPs.

  246. GG on December 13, 2012 at 5:27 pm


    There are penalties for collapsing an RESP, but the end result would approximately be as if you had used an unregistered investment account from the beginning. But you say you are using CST, which is known to be expensive and imposes additional penalties for various things. Shifting beneficiaries sounds like a good choice, or even just stick with the ungrateful granddaughter (perhaps she will say thank you someday). Or, offer the payment to her as an informal loan and ask her to pay it back. If you collapse accounts, the only winner is CST.

    If I were in your shoes and had to do it again, I would go with a vanilla RESP from a bank. TFSA would also be a good alternative, especially if I couldn’t get CESG for a particular grandchild.

  247. Ed Rempel on December 13, 2012 at 8:06 pm

    Hi Frugal_Rock,

    The grant will go to each RESP in proportion to the contributions. If you contribute too much in total, the RESP contributed to first will get the grant.

    If you and the grandmother both contribute to separate plans, each plan will get the grant. If there is a risk of overcontributing, then contribute your portion early in the year, so you get the grant in your plan.

    The process is that you contribute. At the end of the month, the RESP administrator (fund company) applies for the grant. HRDC looks at the total grants paid to date for the life and year to verify the grant is warranted, and then send the grant to the RESP administrator for the end of the following month.


  248. Ed Rempel on December 13, 2012 at 8:14 pm

    Hi J.R.Lafrance,

    Yes, scholarship trust plans lock you in. Mutual fund RESPs don’t have those restrictions.

    I believe that the scholarship trust plan is yours, not your granddaughters. You can just cash it in, pay the penalty and keep the rest.

    With your scholarship trust, you have to pay a large penalty if you stop contributing, even if you do not take any money out. However, it might still be worth doing if the kids are relatively young. You essentially pay a $2,000 penalty, which is the commission the salesperson made to sell you the CST. But if you reinvest it in a mutual fund RESP, you might be able to make all that back and more with a reasonable expectation of returns.

    With a scholarship trust, you can usually only change the beneficiary if the main beneficiary is under 14. In your case, changing the beneficiary is probably no longer possible. With a mutual fund RESP, you can change the beneficiary even after they reach their 20s.


  249. Marcin on December 21, 2012 at 12:36 pm

    I transferred RESP with BMO to Questrade. I want freedom of choosing investments and the timing.

  250. Del Anderson on January 28, 2013 at 10:46 am

    Beware of TD Canada Trust RESP

    Unless you want your RESP, and Government Grants to be invested in a Term GIC, beware of TD Canada Trust’s RESP !

    If you want your RESP invested in mutual funds, if you want to receive Government Grants that are available (beyond the CESG), and, do not want a RESP account plus a Term GIC account (yes, two accounts!), look at either Royal Bank of Canada, Scotia Bank, CIBC or Bank of Montreal and not TD Canada Trust!

    TD Canada Trust’s policy dictates that if you wish to receive Government Grants such as the a-CESG, the Canadian Learning Bond, Quebec Education Savings Incentive, or the Alberta Centennial Education Savings Grant, they will only process the applications if the funds from these Grants are placed into a Term GIC. And, these funds cannot ever be rolled into your mutual fund RESP or transferred.
    You have no choice in this !

    With TD Canada Trust, if you wish your TD Canada Trust RESP be invested in Mutual Funds, and, you also wish to receive Government Grants beyond the CESG, you must have two RESP accounts (imagine the headaches for you the subscriber, and also the problems when the beneficiary begins his or her post-secondary education) with this. You have no choice with TD Canada Trust.

    Royal Bank of Canada, Scotia Bank, CIBC or Bank of Montreal do not have such a restrictive policy.

  251. Allison on January 12, 2014 at 4:14 pm

    You only need room in your RRSP for the growth portion of the RESP, not the contributed portion.

  252. Emily on November 6, 2015 at 1:27 pm

    @Ed Rempel. What if someone already made the mistake of entering into the CST (group RESP) plans? 7 years ago, my husband and I thought we were doing the right thing by starting a plan so early. I quickly realized my mistake but it was too late. If I had of switched my plan, I would have lost $2400 of “enrollment fees.” The HUGE downside to these plans is that you can’t reduce your amount of contributions. It seems like a great idea when you are enjoying a double income of $130000/yr but not when reduced to a single income of $60000. Of course, if I had to, I could have reduced (and just lost the enrollment fees) but I can’t stand that type of loss. I recently called and apparently because I have contributed for so long, I am eligible next year to stop/reduce my contributions without penalty. Should I stop contributing and start a new plan with the bank for her? Now that I’m in so deep, should I just keep going? I made better decisions for the RESP for my son luckily, but since I can vary my monthly contribution, his has accumulated much less :(

    Thanks for all the info! Love this blog..

  253. Amit on April 5, 2017 at 1:00 am

    I have a few questions related to the taxes once it’s time to withdraw the funds – especially around the fees that I have paid to my group RESP provider (USC/KFF). I have checked that from my initial deposit of $31K the all the fees that I paid was $7K. So, when I am going to get my principal back I am only going to get $24K back. I understand that all the income will be taxed on my kid’s tax returns but how can I claim a credit for the $7K lost in the fees? How can I claim this loss anywhere on the tax returns?

    To complicate the matters, I moved to USA temporarily on a TN-1 visa and for tax purposes USA deems RESPs as any other account and since they get no special treatment, I would have paid taxes on those gains on income every year till it’s time to take the funds out. And, since I am never going to get that income on the investment and my child is finally going to get it, the child will end up paying taxes on it as well. How do I claim any credit on the taxes that I would have paid over the years in USA? Will a foreign tax credit apply especially towards those depository fees of $7K and on all the income that I was made to pay tax on even though there were no distributions in that account? Is there any cross-border expert here on the forum who has dealt with this scenario with RESPs before? Any help would be appreciated.

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