RESP: Free Money Folks

I found this classic from many years back (2006). I added a bit of spit and polish and updated the data as well. To get more information about how I used the RESP Program, see my RESP page.

For those of you who don’t know about the RESP program (and are Canadian of course) you need to learn about it. It is for folks with kids under the ages of 17. This program is free money from the government for your kids to go to post-secondary training programs. It is not just University programs; college programs and post-secondary technical programs also fit into this. As always, do the research about the programs covered.

The CESG

For up to $2500 you put in every year the government will kick in a percentage of their own depending on how much money you make in the year:

• If your family income is greater than $98,040 or so, you get a 20% one time kick in from the government. This means if you put in $2500, it turns into $500.00 within 3 months
• If you make less than $98,040, there is even up to $550 to be had in CESG (Canada Education Savings Grant)
• If you make less than $49,020, there is $600 available

The maximum CESG for each individual in the plan is $7200.

The Canada Learning Bond (CLB)

…provides an additional incentive of up to $2,000 to help modest-income families start saving early for their child’s education after high school (post-secondary education)

Canada Learning Bond (CLB)

The CLB is available for children from low-income families born in 2004 or later and provide an initial $500 for the first year the child is eligible, up to age 15, plus $100 for each additional year of eligibility, up to 15 years for a maximum of $2,000.

RESP is After Tax Money

So the catch is that an RESP is not like an RRSP, in that the money put in is treated as after tax money. You don’t get to write it off your taxes, like an RRSP. Your kids also have to go into a recognized post-secondary training program, or you lose the one-time grants as well. However, these things are TRANSFERABLE to other children and even spouses, but they do have a set time period as well (but don’t take my word on this, READ first).

On the positive side, the program pays out in your child’s hands, so it is taxed at a lower rate (hopefully). The kids pay tax on any growth in the fund, the grants and the bonds added.

Go To a Bank and Open an RESP ?

Bank RESPs will mean you put your money in Bank Mutual Funds exclusively. I did this, with Canada Trust in 1992, but I wasn’t as sophisticated back then. My CT Mutual Funds turned into TD I-Series Funds. These funds have MERs of around 2%, yearly. I then learned about the TD E-series funds from the Canadian Capitalist. I transferred to those funds and set up a good portfolio for each RESP.

You might better set up an RESP with TD Direct Line, Questrade or similar trading sites. You can then purchase whatever Index Fund or ETF you wish.

Even More on RESPs

Remember I have an entire page dedicated to the Registered Education Savings Plan.