# What and where should I start RESP?



## desidon (Nov 8, 2010)

Hi folks,

We are young parents. We are expecting our first child in the March 2011. I have heard that RESP is a good way for securing money for childs future education.

I am 32 and still doing grad studies. My wife works as a cashier at a superstore. Our annual combined income was 29274 CAD for 2009. We are living in a rented house. We have nearly 8,000 CAD of savings with us in bank (savings and TFSA).

My question is what kind of RESP is better for my child? I mean from TD, RBC or CST (http://www.cst.org).

I am going to start TD Mutual Fund E-series TFSA soon for our selves and will start doing couch potato mutual funds portfolio. 100 CAD per month for each of us.

I have no idea about various kinds of RESPs. Can you please let me know which RESP plans you guys are using and with which bank. How much money do you think we should put aside for the child per month? Any other advise on financial planning is also welcome.

Your help is greatly appreciated.

Thank you very much in advance.


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## the-royal-mail (Dec 11, 2009)

Welcome to the forum!

You're not going to like this very much, but I personally think you are on shaky ground with income of less than $30K per year and $8K in savings. The savings are good (esp since most people have debt!), but it is widely recommended to have between 6 and 12 months of living expenses in cash ready to go in case of adversity. I target between $15-30K just for tier 1 alone.

Will you want to buy your own house at some point? Where will the money for that come from? Start saving today!

I personally think you need to first get your savings plan for yourselves in order, before thinking about 18 years from now for someone else. What you've saved is very good but IMO you should save much more. 

These RESP salesmen are clearly very good at what they do.

Good luck!


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## Four Pillars (Apr 5, 2009)

I would stay away from CST - they are a type of scholarship program which has a lot of extra restrictions.

I have to agree with Royal - RESP should be the last thing you guys should be worried about. Check this recent thread for validation - http://canadianmoneyforum.com/showthread.php?t=5582

Starting a TFSA is a great idea. Just work on that for now. Once you start working and making more money then you can worry about other items.


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## crazyjackcsa (Aug 8, 2010)

The pair of them could still set up a small RESP without too much of a burden. I'd suggest taking the UCCB and setting it aside into a self directed RESP.

I'm with TD, and I love it, the only downside is you can't get the extra 10% top up on the first $500 dollars, but that isn't a huge deal.

If you think you can swing it, then go for it. 30K isn't a tonne of money, but only you really know what you're finances are like. What are you're expense like for a year? Are you saving any money each month? Are you happy living in a rented house for the next 5 years?

These are all questions only you can answer. And remember, you can always halt the investing plan if money gets tight.


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## kcowan (Jul 1, 2010)

I agree with TRM. You have more things on your plate than an RRSP. The payoff from RRSP investing is usually when you are in your high earning years in your 40s (maybe late 30s).


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## atrp2biz (Sep 22, 2010)

kcowan said:


> I agree with TRM. You have more things on your plate than an RRSP. The payoff from RRSP investing is usually when you are in your high earning years in your 40s (maybe late 30s).


I don't see a reference to RRSPs in previous posts. 

In any case, RESPs are tax deferrals (and capital gains/income transfers to lower earning children) of gains from after-tax capital. TFSAs go one step further in eliminating taxes on capital gains and income from after-tax capital in addition to being significantly more flexible. Contributing to, and maximizing TFSAs should be the number one priority. 

On the other hand, RESP contributions get a 20% bump from the government, but I tend to agree with everyone else's thoughts here in that you have to solidify the position of mom and dad before looking after the finances of your -3 month old.


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## Cal (Jun 17, 2009)

I am not sure if your monthly cash flow would, or really should at this point allow for it. But you should set up the RESP's (great start) and have it ready to utilize to place any gift monies into for the children.

For your level. I would keep it simple. I would use the same bank you bank with, and put the money into an low fee mutual fund (like an index fund) or a low fee-transaction fee etf that is balanced.

One fund or etf. low fees.


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## Potato (Apr 3, 2009)

Four Pillars said:


> RESP should be the last thing you guys should be worried about.



I don't want to speak against the guy who wrote the book on RESPs, but I would flavour that a little by saying that with your income you could likely qualify for additional grants from the government on the first $500 in an RESP, and that might be a decent amount to shoot for -- more free money from the government, without being too much of a burden on the rest of the budget.

Either way, not something you have to worry about until next fall or later.


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## Spidey (May 11, 2009)

I highly recommend an RESP. The grants are the closest thing to free money that you're going to get these days. Basically only the grant and growth are taxable when redeemed and you can do what you wish with the principal. And since the grant and growth will be taxed to your university aged child (who also has tuition-related deductions) there will usually be no tax owed.

I strongly agree with the advice to stay away from group RESP trust plans such as CST. They will strongly penalize you if you're children cannot or do not want to go to post-secondary education and they also take a large percentage in fees. A colleague of mine signed up for such a group trust plan when his child was an infant and later discovered that the child had learning disabilities and would unlikely go on to college. Stick with the big banks or your own self-directed plan.

I've set up a self directed plan with TD Waterhouse and followed a "couch potato" plan with their "e" funds. Just make sure you move a larger percentage into fixed income and cash as the children approach university age.


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## Four Pillars (Apr 5, 2009)

Potato said:


> I don't want to speak against the guy who wrote the book on RESPs, but I would flavour that a little by saying that with your income you could likely qualify for additional grants from the government on the first $500 in an RESP, and that might be a decent amount to shoot for -- more free money from the government, without being too much of a burden on the rest of the budget.
> 
> Either way, not something you have to worry about until next fall or later.


Lol. I'm not the "ultimate expert". 

I didn't even think about the extra grants, but they could score pretty big. If they contribute $500 per year, they can get $200 of grants which is 40%...which is good! ( additional low income grants only apply to the first $500 of contributions per year )

They might even qualify for the CLB - that would be $525 for the first year and $100 each year after that. Free money - no contribution.

I respectively request to take my original answer back...


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## the-royal-mail (Dec 11, 2009)

I stick with my original answer. The $8K in savings are not sufficient for the parents to keep the household afloat. In case of adversity over the next 18 years, the OP is not ready to weather the storm if they're saving all their spare money for someone else's education.


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## crazyjackcsa (Aug 8, 2010)

The 8k may very well be enough to keep the family afloat. You have to figure that with such a limited income, their expenses are pretty low and they are adept at savings. 8 grand could be 6 months (or more) of living expenses. I'm curious as to what the family is doing for mat leave? That's a huge question mark. And an RESP isn't an all or nothing affair,they don't need to sock away "all their spare money" a very small deposit can easily fit the bill, and provide the pyschological benefit of knowing that they are putting aside a little something.


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## Westerly (Dec 26, 2010)

Hi all, just started reading this forum this month and see really great discussions. A first post if I may

I think RESPs are a great option but would not be looking at that for at least 5 years. 

We were in a similar situation 10-12 years ago with both of us just getting out of school. Depending on where the OP is at with student loans, close to finishing school, employment prospects etc, it may be worthwhile considering putting the funds into RRSPs. If 2010 income is similar to 2009, putting the $8,000 into the RRSP for 2010 may generate in excess of 30 - 40% in direct cash returns in the form of tax, CTB, and GST credits. This in turn can go into RRSPs again, and again next year. If you keep recontributing the rolling returns (I just made that up) can be substantial and accummulate to an excess of 70% returns over 2-3 tax years before it's even invested. 

I haven't looked recently but CTB (and the national portion) used to start getting clawed back at a substantial rate when net family income went over $21,000. For us at the time with 2 kids it was a difference of nearly 50 cents on every dollar over $21K. We used our refunds to substantially pay down our student loans. 

Happy holidays.


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