Mike, thanks for joining us today. I think we're ready to get started, so why don't you tell our readers a bit about yourself and how you became so interested in Registered Education Savings Plans.
I work in the financial industry and have run a personal finance blog (http://www.moneysmartsblog.com) for several years.
I originally became interested in RESPs because of questions from my sister who had kids before I did and of course because I ended up having kids of my own with RESPs. It's been a very popular topic on my blog and the material ended up as a book (available on Amazon).
I've got a question for you to start us off. I have family RESPs set up for my kids, but I haven't been maxing out my contribution room. I'm planning to increase my contributions once my mortgage is paid off. What are the rules about topping up?
Basic rule is that you can contribute $2,500 per year per child to get the maximum grant. You can also contribute another $2,500 per year per child if there is enough unused grant-eligible contribution room. There are other considerations as well - this article has some detailed examples.
Good to know. Thanks! We have a lot of questions from readers, so let's get to some of them.
@Ken - Unfortunately the year the child turns 17 is the last year any RESP grants can be received. Any contributions made after that time will be accepted into the account, but no grants will be paid.
@Dan - By "transfer", do you mean withdraw from your son's RESP for educational purposes and then contribute to your daughter's account? If so, then yes you can do that. It's not exactly in line with the spirit of the RESP, but there are no restrictions on what you use the withdrawals for.
@Dave - Congrats on the kid. Yes, any unused grant-eligible contribution room is carried forward. If you have the money you can contribute $5,000 this year to get caught up and get the maximum $1,000 grant. You are allowed to catch up on $2,500 of unused grant-eligible contribution room each year.
@Dave - To withdraw money from an RESP, you just need to show proof of enrolment at a qualified institution and that's it. No receipts, no stories - just ask for the $$.
@Peter E - Every contribution to an RESP account has to be allocated to one or more beneficiaries (kids). Most institutions will default contributions evenly between the beneficiaries. However on the contribution form, there should be a spot where you indicate which beneficiary or beneficiaries will be getting that contribution and in what proportion.
To find out the kids individual contribution amounts, I would contact the financial institution or call the HRSDC phone number 1 800 276 3624.
In case anyone is wondering why I'm using the term "grant-eligible contribution room" it's because there is no annual contribution limit - only a lifetime limit per beneficiary (child) of $50,000. This means that it is possible to contribute extra money to an RESP and not get any grant, which is not what most people want.
@pn51 - I've heard of the Sask grant proposal, but I haven't heard of it being implemented yet.
@sb - Yes, CEGEP counts as eligible for RESP withdrawals.
Greg, that's hilarious. My kids dragged me to get balloon animals from an RESP provider at a community festival. I guess it works on some people!
My suggestion is to get the free balloon animals and set up your RESP elsewhere.
@Julie - I haven't heard of the "Trust Fund", but I will assume it is a group/pooled RESP product. Firstly, if you have a group plan which you are unhappy with and want to increase your contributions, I would set up a self-directed RESP and put all extra contributions there. Secondly - It's a difficult question to answer about staying the course or quitting a group plan. The longer you have been in the plan, the more sense it makes to stay in it. After 5 years, you might be better off quitting, but it really depends if the child can use it for post-secondary education.
Mike, this might be a good time to talk about alternative savings plans. Many readers seem dissatisfied with their group plans. Are RESPs the best choice for all families?
Dianne - I think that RESPs are a great choice for most families, assuming their finances are in reasonable shape. Group plans are only one option. Most people are better off just going to their bank and set up something simple there. This article covers some easy RESP account options:
Alternatives to RESP accounts altogether might include TFSAs if the parents have unused contribution room or even an unregistered account perhaps held in trust. Neither option gives the 20% grant which in my mind makes the RESP the best choice, even if it doesn't work out perfectly for everyone.
@sb - For people in group plans, the withdrawal schedule is very strict and they will tell you how much you can have each year.
Fun fact: It's a misconception that RESP money can only be shared between siblings in a family account. It can also be done between two individual RESP accounts as well.
@narmstrong19 - Unused RESP contributions can be withdrawn without any penalties. Unused non-contribution money is where the penalties happen. Grants will be returned to the government and the money is taxed at the marginal rate of the subscriber + 20%. You can roll the money into an RRSP, but the best strategy is just to use up all the non-contribution money while the child is at school.
You don't have to justify RESP withdrawals as long as the child is enrolled at an eligible institution, so make sure you don't leave any non-contribution money in the account when the student has finished their education.
@Michael Farren - Yes, but CDIC only applies to specific products such as savings accounts, gics etc. So if you have mutual funds in your RESP, they are not covered, but that is true for all mutual funds in any type of account.