# Too much money in RESP?



## metta2006 (May 1, 2011)

Hi,
I have been maxing out RESP contribution to get most CESG grants for my two kids aged 7 and 3. The combined RESP is now about 40K. Now I start to wonder if it is getting too big if I keep contributing $2500 each year for each kid. I read somewhere that I should stop contributing when it becomes 36K for each kid as this is where CESG grant will stop. Is it correct?

I don't have a debt or mortgage as we are renting a house so I have money to contribute to RESP although our asset is only about 200K(we are 40yrs old). But I don't want to be in the situation where too much money is in RESP especially if kids don't want to go to college. What would be reasonable amount to have in RESP? If the older one does not go to college, can the second one take out all the money even if the money is way more than actual cost of education? These days, university education does not guarantee any job so I'm getting reluctant to put too much money in RSEP. What do you guys think? RSEP withdrawal rules are complicated and there are so many ifs, but do you think it is worth to maximize RESP for CESG grants?
Thank you so much in advance.


----------



## diharv (Apr 19, 2011)

There are no annual contribution limits to how much you want to contribute to each kids RESP but the 20% grant is only payable on the first $2500 to a maximum CESG of $7200 per child I believe. I don't know the answers to the withdrawl questions you have but given the costs of post seconday education these days I don't think it is possible to have too much. I contribte $2500 per year for two children every year and will do so until the end of the year in which they turn 17.


----------



## wendi1 (Oct 2, 2013)

Unless your RESP provider forbids it, you can move money from one sibling's RESP to another. http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/resp-reee/spcl/chngng-eng.html

You can have your contributions returned to you (not the grant money!) if the kids don't go to post secondary education (it can be used for college or trade school, not just university). http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/resp-reee/pymnts/sbbn-eng.html

diharv is correct about the contribution limits. 40K won't cover as much as you think...

But don't neglect your retirement savings for this - to loosely quote David Chilton - "you MUST save for retirement".


----------



## Ponderling (Mar 1, 2013)

Many years ago, when the program was getting into high gear (when max $500 per kid per year CSEG kicked in) the Globe ran an analysis that showed dumping 50K in when the kid was just born ( ala flush grandparents) and forgoing the CSEG other than the first year's payment actually gave you more money at the age of uni than dripping funds in to get the maximum CSEG. 

We were overseas when son one was born, and the paperwork to set this up from Austraila was a non starter. So when we got back, I started both kids, and then once I got my head a bit above water after closing the house I made a lump sum to get son one's contributuions 'caught up'. 

We are on track to make the last $3000 per kid per year in about three years. Currently the thing for the two of them sits at $117k. So getting in early is more powerful then waiting and just matching to max the CSEG. 

Yes, RRSP , and now TFSA's are also maxed for us. We are saving for retirement and also early retirement.


----------



## underemployedactor (Oct 22, 2011)

CRA has all the deets, as per Weni1's posted links. The other thing to remember is that even if they don't go to a university, the money can be used for any any institution certified by the Minister of Employment. This is a pretty wide range of post secondary schools. A friend of mine sent her kid to hairdressing school and I think that was eligible.


----------



## Plugging Along (Jan 3, 2011)

I think that that the RESP is a great deal and am also maxing out $2500 each year until the grant is used up. I do that through my advisor. I was planning to stop at the $36k too. 

Is it allowable that I open another RESP at my self directed broker, and put in the remainder $14k but NOT claim the grant and just couch potatoe it? Then It because tax free.


----------



## CanadianCapitalist (Mar 31, 2009)

+1 to wendi1's suggestions. Don't forget your own retirement savings. Also, you can withdraw your *contributions* for your use and the child can take out the grants + growth for their education.


----------



## OptsyEagle (Nov 29, 2009)

CanadianCapitalist said:


> +1 to wendi1's suggestions. Don't forget your own retirement savings. Also, you can withdraw your *contributions* for your use and the child can take out the grants + growth for their education.


I am pretty sure if you withdraw your contributions, the plan sends the CESG, that attributable to those withdrawals, back to the government.

Now as long as you are OK with this, since it is fair, then there is really no downside to having too much money in the RESP. The problem people have is psychological. Since the grant is deposited as the money is contributed and starts to feel like their property, parents feel it to be costly to see that money sent back to the government, when their children do not require it for education.


----------



## OptsyEagle (Nov 29, 2009)

In my experience, here is where most parents mess up when administering their RESPs. 

Since almost every child goes on to some form of post secondary education my recommendation to my friends is this. In the 1st 13 weeks you can withdraw a maximum of $5,000. After that, I don't believe there is any maximum at all. Since one has to show proof of enrolment, and a receipt for tuition is usually the most accepted proof, many parents will submit that receipt and assume that how much the RESP plan is allowed to pay out. This is false. The receipt is for proof of enrolment only. The amount of withdraw can be anything between $0 and $5,000, in the 1st 13 weeks, and no maximum after that. This is my understanding anyways.

My suggestion. When your child first enrols in post secondary education, withdraw all of the money or $5,000, whichever is less. Make sure you request that this withdraw be made up of grant money first, then growth, then contributions. This election is allowed. Use up that grant for education or lose it. Those are your choices.

After 13 weeks, withdraw the rest. Put it in a savings account or anything else but get it out of the RESP. Future tax deferral does not make up for the risk that the child will quit school or not use all the money for education, causing some or all of the CESG to be forfeited. That CESG can make up close to 20% of the entire account. This is how you ensure that you keep. Remember, getting it is the first step, keeping it is the next.

That's the plan I recommend to my siblings and friends.


----------



## Four Pillars (Apr 5, 2009)

My thoughts: http://www.moneysmartsblog.com/withdrawing-money-resp-account/


----------



## swoop_ds (Mar 2, 2010)

Do what OptsyEagle said. 

Also, the RESP book (search amazon) is a great read.


----------



## piano mom (Jan 18, 2012)

RESP is almost $80k now for 10 and 13 year olds. Will stop when grant max is reached. Will also do as Optsyeagle said.


----------



## alingva (Aug 17, 2013)

metta2006 said:


> Hi,
> I have been maxing out RESP contribution to get most CESG grants for my two kids aged 7 and 3. The combined RESP is now about 40K. Now I start to wonder if it is getting too big if I keep contributing $2500 each year for each kid. I read somewhere that I should stop contributing when it becomes 36K for each kid as this is where CESG grant will stop. Is it correct?
> 
> I don't have a debt or mortgage as we are renting a house so I have money to contribute to RESP although our asset is only about 200K(we are 40yrs old). But I don't want to be in the situation where too much money is in RESP especially if kids don't want to go to college. What would be reasonable amount to have in RESP? If the older one does not go to college, can the second one take out all the money even if the money is way more than actual cost of education? These days, university education does not guarantee any job so I'm getting reluctant to put too much money in RSEP. What do you guys think? RSEP withdrawal rules are complicated and there are so many ifs, but do you think it is worth to maximize RESP for CESG grants?
> Thank you so much in advance.


50K per kid per lifetime, you get at least 20% (you can get more if your family income is low) from the Gov up to $7200 per child per lifetime. You get 20% on the first $2500/kid/year for your contributes and you can get additional 20% if you did not contribute in previous year(s) (i..e max you can get per year is $1000 for your $5000). You should contribute as much as you can. If you have RESP with a bank there are 3 parts in RESP - your money, Gov grant and the growth. 
1.Your money you can withdraw at any time w/o any penalty/taxes; 
2.the Grant you can get only if at least one of the children goes to school (if both of them go to school you decide how to split the grant between them but the child cannot receive more than $7200 of the Grant). 
3.If at least 1 child goes to school you get the growth too. If they do not go to school and the plan was open for at least 10 years and the children at least 20 y.o. - the growth portion can transferred to your RRSP.
Grant and the Growth is taxable to the child who goes to school
RESP is quite complex plan, but the thing is this - you get free money and should maximize your contributions if you can. You get free money and education will not be cheap


----------



## Just a Guy (Mar 27, 2012)

Instead of withdrawing all the money as optsyeagle suggested, I'd at least suggest that the kids withdraw the maximum personal exemption amount so that all the money comes out tax free.


----------



## Guban (Jul 5, 2011)

OptsyEagle said:


> My suggestion. When your child first enrols in post secondary education, withdraw all of the money or $5,000, whichever is less. Make sure you request that this withdraw be made up of grant money first, then growth, then contributions. This election is allowed. Use up that grant for education or lose it. Those are your choices.
> 
> After 13 weeks, withdraw the rest. Put it in a savings account or anything else but get it out of the RESP. Future tax deferral does not make up for the risk that the child will quit school or not use all the money for education, causing some or all of the CESG to be forfeited. That CESG can make up close to 20% of the entire account. This is how you ensure that you keep. Remember, getting it is the first step, keeping it is the next.
> .


Do you mean withdraw the rest of the grant and growth after 13 weeks? Wouldn't you leave the contributions in the RESP so that any further growth is taxed in the hands of the kids?


----------



## Guban (Jul 5, 2011)

piano mom said:


> RESP is almost $80k now for 10 and 13 year olds. Will stop when grant max is reached. Will also do as Optsyeagle said.


Why stop then? Does this mean that you will switch over to TFSA and RRSP investing after that? It seems that RESPs are a good way to split income with the kids even after the maximum grant is reached if your other registered accounts are maxed out.


----------



## OptsyEagle (Nov 29, 2009)

Guban said:


> Do you mean withdraw the rest of the grant and growth after 13 weeks? Wouldn't you leave the contributions in the RESP so that any further growth is taxed in the hands of the kids?


In theory you could leave the contributions inside, but I am not totally sure if removing the grant part will eliminate the repayment obligation, if the contributions are taken back by the subscriber. They ask the subscriber to elect what forms of the plan they want on each education withdraw. They may be asking this, since the growth and grant is a taxable withdraw to the child and of course the contributions are tax free, to everyone, no matter how you take them. I suspect if the subscriber removes $5,000 for non-education purposes, your plan administrator is going to take $1,000 from the RESP and send it back to the government, under any circumstances. That is what I would do if I was designing the rules for the plan, anyways.

To be safe, I would take it all out. The only caveat are situations like less then $10,000 in the plan and you have 3 kids, who want to a doctor, dentist and a lawyer, respectively. I doubt that you're not going to be able to use it up for education.

Another consideration, that was given by Just A Guy, is to remember that all amounts of growth and grant, that are withdrawn for education, are taxable to your child. So if these amounts are higher then your kids personal exemption, plus his/her tuition credits, then be concerned that your child may have some tax owing on these withdrawals. It would be a pretty darn large RESP, before this ever happens, but perhaps your child is earning income elsewhere, as well. It is something that has to be considered when you are making your withdrawals.


----------

