# How do you invest for your kids?



## MrMike (Sep 30, 2020)

I'm wondering how other people invest for their kids. I have 2 boys that are 8/9 years old now.

I have opened a FRESP (*Family Registered Education Saving Plan*) for their post-secondary education.
For investments (allowance, birthday, Christmas, etc...) I've opened up *2 more TFSA accounts in my name* but am treating it like their account.... except I can't give accounts nicknames, come on Questrade









Once they turn 18, I plan to withdraw the money and put it into an account in their name.
Is there a better way to invest for them? or is there something else I've missed. Thanks


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## Plugging Along (Jan 3, 2011)

I did the FRESP until each was 14 (to get the max grants) PLUS I topped off for the remaining $14k each (no grant, but tax free) to hit the $50K limit. Have you hit the max $50K for each child?

Then any extra money (gifts, money they earned, etc) I put an a separate in trust account where the capital gains are taxed under them, and the interest and dividends are taxed to us (parents). My kids have recently wanted to do more investing, so I have recently started investing under their own In trust accounts. When they turn 18, I will slowly move that amount over to a TFSA under their names. 
Here's a thread I had asked questions on. It may or may not be helpful as I was looking for specific investments. 
Non registered In trust account for minors: suggestions | Canadian Money Forum 

I have kept my TSFA for myself.


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## Money172375 (Jun 29, 2018)

We put $2500 into RESPs until we received the max $7200 grant. Now I’m investing in my non-reg account. When they turn 18, or maybe later, I’ll sell everything and hand them the cash.......or maybe transfer them in-kind to them. Just need to think about the best way from a ACB/capital gains perspective.

in-trust is probably the best method, but I didn’t consider that in the early days, and it’s probably too late now.


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## Plugging Along (Jan 3, 2011)

Money172375 said:


> We put $2500 into RESPs until we received the max $7200 grant. Now I’m investing in my non-reg account. When they turn 18, or maybe later, I’ll sell everything and hand them the cash.......or maybe transfer them in-kind to them. Just need to think about the best way from a ACB/capital gains perspective.
> 
> in-trust is probably the best method, but I didn’t consider that in the early days, and it’s probably too late now.


Curious on why you didn't fill up the other $14K in the RESP? I think you can transfer it in trust any time, but you will have to pay the gains right away.


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## Ponderling (Mar 1, 2013)

Fed 3k per kid per year into resp, until when I paid the mortgage off, Then I did a lump sum to bring each to 50k invested after max grant gathered. Topped out at 181k before we started to draw it down. Mostly MAW104, GIC ladder for 60% of value from 5 years prior to oldest starting to need use of the funds.

From when 10 years old every Saturday at breakfast table we would take turns reading out loud 'stars and dogs' from the Globe Saturday ROB section. Satirical, but over time it educates you that the way that stock prices move is not purely magical, but happens in response to underlying conditions, and news.


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## Plugging Along (Jan 3, 2011)

@Ponderling Did you top out at $181K for EACH child, or was that in total. I am worried that we aren't saving enough


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## Money172375 (Jun 29, 2018)

Plugging Along said:


> Curious on why you didn't fill up the other $14K in the RESP? I think you can transfer it in trust any time, but you will have to pay the gains right away.


I probably should have. Kids are 17 and 16 now. So the years of tax free growth are limited. 
I’m pretty sure you can have super large RESPs but I do see the occasional story where the banks or CRA want proof of actual expenses. Although I spent 20 years in retail banking and we never asked for proof of expenses. 

that Being said, our RESP is about $150 combined. not Sure if that’s enough as even some of the advanced bachelor degrees are $25k just for tuition.


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## ian (Jun 18, 2016)

We put $2500 in the RESP for each of our two grandchildren since birth. Soon to be three. We will do so until the maximum benefits are reached. Who knows, perhaps the benefits will be reviewed and altered by a future Government.

They are both under six. All monies are invested in equities. We will adjust the investment allocation as each child ages. 

Both of our current wills call for a sum off the top be held in trust for each child’s post secondary edu. This will be adjusted every few years when we review our respective wills.

The challenge we see is that the cost of post secondary education is increasing at a faster rate than inflation.


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## Just a Guy (Mar 27, 2012)

Why are you doing the investments for them? Why not involve them so they learn how it works? Have them pick their stocks and let them see what happens to them. Otherwise, when they come of age, they are given a lot of money with no idea of how it was made. Better to give them an education than give them money.


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## Bananatron (Jan 18, 2021)

We have been topping up the family RESP's @ $2500 per kid but I'll stop at 14 years when we hit the max grant. I am not sure but I will probably still have some TFSA room between the wife and I at that time. Grandma has been doing one in parallel and that should be a nice graduation type gift of $5000 or so each.

My dream is to have the kids stay at home during college/uni and we can pay together for their education out of pocket. Summer jobs and off my income. Then take the RESP income and get an early start on the kids TFSAs, sort of in trust. To eventually be used as a down payment on a house nothing silly like a new car or European vacation. Not sure what we'll do with the sponsor portion, probably just leave it as an emergency fund or something like that.

I might be a tad aggressive on the investing, I'm about 90% equities in that account.

On that note, does anyone know how long you can retroactively claim the education expenses? Lets say my kid went to school during a correction in the market - could I wait a year (or 4) to withdraw the grant portion when the market is stronger?


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## Ponderling (Mar 1, 2013)

no, 181k was for my two kids in a common plan.


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## Bananatron (Jan 18, 2021)

Plugging Along said:


> @Ponderling Did you top out at $181K for EACH child, or was that in total. I am worried that we aren't saving enough


Why would someone else's total cause you to question your own investing strategy?


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## Money172375 (Jun 29, 2018)

Just a Guy said:


> Why are you doing the investments for them? Why not involve them so they learn how it works? Have them pick their stocks and let them see what happens to them. Otherwise, when they come of age, they are given a lot of money with no idea of how it was made. Better to give them an education than give them money.


i did just that. My son bought $2k of PSYK


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## Ponderling (Mar 1, 2013)

We have been pulling out about $15k per year of the first kid, way beyond what he spent living at home, but, hey, very little grant at the start. I read the calculation rules, and ever the engineer, built a spread sheet to play what if. It turned out that with the hefty balance only drips came from cseg.

So we have been making capital withdrawals and stuffing it into non reg, and then kick 6k per year in to fund his TFSA now that he is past 18 and can start one.


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## Plugging Along (Jan 3, 2011)

Money172375 said:


> I probably should have. Kids are 17 and 16 now. So the years of tax free growth are limited.
> I’m pretty sure you can have super large RESPs but I do see the occasional story where the banks or CRA want proof of actual expenses. Although I spent 20 years in retail banking and we never asked for proof of expenses.
> 
> that Being said, our RESP is about $150 combined. not Sure if that’s enough as even some of the advanced bachelor degrees are $25k just for tuition.


I have heard of many people contributing to the max grant, but then opening another type of account even though they can still add $14k more. I havent figured what the benefits are If there is still room In the RESP? 



Just a Guy said:


> Why are you doing the investments for them? Why not involve them so they learn how it works? Have them pick their stocks and let them see what happens to them. Otherwise, when they come of age, they are given a lot of money with no idea of how it was made. Better to give them an education than give them money.


Mine are involved, we talked about different options and risks. Sadly, I haven’t been great with my own investments so I still have an advisor for questions. 




Bananatron said:


> Why would someone else's total cause you to question your own investing strategy?


they were two separate statements. The other posters balance is similar to mine, I know from previous threads the other poster has said they have not been drawing down as much and will have left over in the resp. knowing that they have enough for their kids, means I should‘t be too far off Even if they are a little older. Except If their balance was for just one child, then it would be a concern for me as I have two kids working with the same amounts. I still worry that the amount we had put aside may not be enough if they go away.


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## Just a Guy (Mar 27, 2012)

Do you involve your kids with the advisors? My kids heave lawyers, bankers, accountants, financial advisors and more that they deal with regularly since they have significant assets they have to deal with. They’ve been seeing them long before they reached, if they even have reached in some cases, the age of majority. If they didn’t like the advisor, we found a different one.


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## Plugging Along (Jan 3, 2011)

Just a Guy said:


> Do you involve your kids with the advisors? My kids heave lawyers, bankers, accountants, financial advisors and more that they deal with regularly since they have significant assets they have to deal with. They’ve been seeing them long before they reached, if they even have reached in some cases, the age of majority. If they didn’t like the advisor, we found a different one.


Yes we do. the meet with the advisor, accountant, banker. Not really the lawyers, I don’t have a lot dealings with our family lawyers. The don’t have a huge amount of assets but they still come along and sit in the conversations. They started at about age 6 but don’t think they got that much it. My 12 year old asked our advisor about the S&P 500 a few a weeks ago during one of my meetings. He told her it was actually good time to buy. she put in her first $5k and has been monitoring it. the 15 year old has no interest right now, so we just talk about it around her but don’t force it.


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## MrMike (Sep 30, 2020)

Sorry guys but just to summarize, there is really only the RESP. That's the most popular response. 

Then some people make an account in trust but don't you pay tax in that account? That's why I'm doing it in a TFSA in my name and will transfer when they're 18 - to avoid the taxes.


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## Plugging Along (Jan 3, 2011)

MrMike said:


> Sorry guys but just to summarize, there is really only the RESP. That's the most popular response.
> 
> Then some people make an account in trust but don't you pay tax in that account? That's why I'm doing it in a TFSA in my name and will transfer when they're 18 - to avoid the taxes.


In trust account, capital gains are paid by the child which should be nothing or very little, and the dividend and interest by parent. Did you max the $14K in the resp before going to your tfsa.


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## MrMike (Sep 30, 2020)

Plugging Along said:


> Did you max the $14K in the resp


I keep seeing this. What do you mean max $14K.....

From what I see, you can contribute up to $50,000 per child in total lifespan. Each year, the Canadian government will match up to a total of $500/year/child. Which means that each year, you can put in $2,500 for 20 years to get the maximum government match. Of course you could put in more each year but you're using up contribution room and wont be getting more government contribution (for that year).

So where does the 14K come from?


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## Money172375 (Jun 29, 2018)

MrMike said:


> I keep seeing this. What do you mean max $14K.....
> 
> From what I see, you can contribute up to $50,000 per child in total lifespan. Each year, the Canadian government will match up to a total of $500/year/child. Which means that each year, you can put in $2,500 for 20 years to get the maximum government match. Of course you could put in more each year but you're using up contribution room and wont be getting more government contribution (for that year).
> 
> So where does the 14K come from?


You don’t get additional grant money if you contribute more than $36,000 so most people stop contributing at $36k. The max grant is $7200. You can contribute another $14,000 to take advantage of tax free growth, but you won’t get any additional grant. So, some people go right to the $50k, before entertaining other investment choices (non-reg or in-trust)

keep in mind, this is for the CESG....there may be other provincial grants available.


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## MrMike (Sep 30, 2020)

I understand now. Over 14 years:

you contribute $35,000 ($2,500/year)
the government contributes $7,000 ($500/year)
Then in the 15th year, I can contribute $1K to get that last $200.

so no, there's no way I'd put that extra $14 in an RESP - I just don't have that money. I have 2 kids so I have 2 RESP but mine and my wife's TFSA first. I wont be hitting those limits so there's no benefit to putting that extra $14K in there.


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## Benting (Dec 21, 2016)

I am thinking of giving to my grandson 10 shares of dividend stock on his 10 year birthday this year. May be add 2 shares each year after till he reaches 18 and transfer to his TFSA account. Or may be all in one shot so it can have dividend enough to drip one share.

One way is to open a separate TFSA account with the stock and transfer to him when he can have his own, as one of you suggested. This way I will have less tax shelter. Or, open a separate investment account, this will involve tax when I transfer the fund to his.

Which one is better ? Or is there is another way you would recommend ?


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## Plugging Along (Jan 3, 2011)

MrMike said:


> I understand now. Over 14 years:
> 
> you contribute $35,000 ($2,500/year)
> the government contributes $7,000 ($500/year)
> ...


so is the TSFA yours and your wife’s or the kids? 



MrMike said:


> I'm wondering how other people invest for their kids. I have 2 boys that are 8/9 years old now.
> 
> For investments (allowance, birthday, Christmas, etc...) I've opened up *2 more TFSA accounts in my name* but am treating it like their account.... except I can't give accounts nicknames, come on Questrade
> 
> ...


It’s not wrong in what you are doing. But is seems to me that you will have 4 TFSA, yours, wife’s, and each child under your name.
If the amounts are low for the kids, then just For simplicity sake, I would have thrown amount in to their RESP so it doesn’t inter ingle with your savings. Then you also get the benefits of investing those smaller amounts with your larger RESP conteibution saving possibly fees. You can also manage the account as on larger portfolio.

i do see the disadvantage if you don’t think they will go to school, and there is less flexibility because you can’t take the money out until they are in school. I guess the other piece is since it’s from the gift money they might want more of a say when they get a little older on how the money is spent or invested.

It makes sense that you maxout the TSFA, resp, and rrsps before looking at in trusts and other things.


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## Argonaut (Dec 7, 2010)

My kids are 3 and almost 1. Just been doing the old $2,500 each annual contribution.
I originally started with TD e-Series at the bank level, but I believe they've mostly dropped support for that so I transferred it to TD Direct Investing. The account is also now over the $15,000 maintenance fee level at TDDI so it was good timing.

Right now I've got:
30% Canadian Stocks (XIC)
30% World Stocks (XAW)
20% Precious Metals (CEF & BMG130)
20% Bonds & Cash (VAB & TDB8150)

It's pretty conservative for their age, but I'm happy keeping volatility down and with the guaranteed return that the CESG grant provides.

Hoping most Canadian brokers start going to zero commission for ETFs, but I'm not holding my breath. If not I can use e-Series and other mutual funds for periodic contributions until the values get large enough to add more into the ETFs. The TD Bond Index e-Series has become a comedy with its MER about half of the yield-to-maturity though so I'm not interested in that.


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## MrMike (Sep 30, 2020)

Well I have 2 different Questrade User Accounts - my wife and myself. Then within my Questrade account, I have 3 TFSA accounts (and a FRESP and RRSP) - mine and 1 for each kid. 
I did that because like you say, a RESP is only used for school. Otherwise, we will have to give the government contributions back and pay taxes on the rest.

And other advantage is that they can see a single account that is "theirs". They haven't asked to invest in anything specific, except Nintendo which we didn't do, but they can pick a specific stock and we will invest in what they want.

@Benting I'm not sure if you can transfer in kind. If you can then great; but if not, I plan to sell everything and then deposit it back into their new account when they're 18.


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## fourtwenty (Jan 9, 2021)

Geez some of you are crazy generous. We're maxing out the contributions so the kids get the grant portion and the investment gains but we'll be "repossessing" at least half of the capital we put in, when the time comes. The "plan" is to fund 2 years of their education and then they'll have to pay for the rest. My wife and I both paid for our educations out of our own pockets and I think it will be a good experience for them on budgeting, the value of money, hard work etc. It was for us. In my mind a degree is worth much more if you paid for some (or all) of it yourself.

Since they're both boys I expect they will live at home throughout their post-secondary education, so tuition, books and a bus pass will be their only school expenses. Internet say the average tuition is $6500/year in Canada so the amount we're putting away should be plenty for 2 years.

If they excelled and wanted to go for a Ph.D. or something like that, or if there were extenuating circumstances, we would definitely help out more.


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## MrMike (Sep 30, 2020)

fourtwenty said:


> We're maxing out the contributions so the kids get the grant portion and the investment gains but we'll be "repossessing" at least half of the capital we put in, when the time comes.


I would have to do more research closer to the time but as I understand it, you need to show proof you're using the money for education. I don't think you can just take out money, then use part of it for school and take some back yourself. It all needs to be used for school or if no proof is given, I think they will take back part of the government contribution and make you pay tax on the amount you keep.

Does anyone else know for sure?


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## Bananatron (Jan 18, 2021)

MrMike said:


> I would have to do more research closer to the time but as I understand it, you need to show proof you're using the money for education. I don't think you can just take out money, then use part of it for school and take some back yourself. It all needs to be used for school or if no proof is given, I think they will take back part of the government contribution and make you pay tax on the amount you keep.
> 
> Does anyone else know for sure?


The sponsorship portion (the $2500 per year) does not have to go towards education.

Its explained here:






RESP withdrawal rules - Retire Happy


When withdrawing money from RESPs it’s important to understand the RESP withdrawal rules, especially the different tax rules when withdrawing money.




retirehappy.ca


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## MrMike (Sep 30, 2020)

Bananatron said:


> The sponsorship portion (the $2500 per year) does not have to go towards education.


That's amazing. I thank you  

and my kids hate you


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## Plugging Along (Jan 3, 2011)

MrMike said:


> I would have to do more research closer to the time but as I understand it, you need to show proof you're using the money for education. I don't think you can just take out money, then use part of it for school and take some back yourself. It all needs to be used for school or if no proof is given, I think they will take back part of the government contribution and make you pay tax on the amount you keep.
> 
> Does anyone else know for sure?


The program is pretty flexible. You can only withdraw $5k in the first 13 weeks of registration , partly to make sure people don’t take one class with draw everything and and drop out. Other than that, you can use the money for education costs including text books, transportation, and living while you are studying. The grants and gains are are tax le in the child’s hands and you can specify what you are with drawing from. The contribution can be taken out tax free. Also, if the gains aren’t all used up They can be transferred into the contributors RRSP in kind Of the parents have the contribution room, any unused grants go back to the go enemy to. if My niece and nephews are done school and we have been following how they did their set up. So I know this all to be true. 

Since the grants and gains are taxed in the childs income bracket and there will be tuition credits, there could Be $20k tax free each year. That’s not including the contribution a,punt which is tax free.


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## fourtwenty (Jan 9, 2021)

MrMike said:


> I would have to do more research closer to the time but as I understand it, you need to show proof you're using the money for education. I don't think you can just take out money, then use part of it for school and take some back yourself. It all needs to be used for school or if no proof is given, I think they will take back part of the government contribution and make you pay tax on the amount you keep.
> 
> Does anyone else know for sure?


What Bananatron said is exactly what the folks at both financial institutions told me, as well as a professional financial planner I met with before xmas.

My oldest starts high school next year so I still have lots of time to figure out the fine details.


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## fourtwenty (Jan 9, 2021)

Plugging Along said:


> Since the grants and gains are taxed in the childs income bracket and there will be tuition credits, there could Be $20k tax free each year. That’s not including the contribution a,punt which is tax free.


I assume what you mean here is that the child would apply the tuition receipt to their tax return, but wouldn't it be more efficient to have the parent process the tuition tax treatment on the parents tax return instead, or can you not get away with that if you are using RESP grants for the tuition?


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## Plugging Along (Jan 3, 2011)

fourtwenty said:


> Geez some of you are crazy generous. We're maxing out the contributions so the kids get the grant portion and the investment gains but we'll be "repossessing" at least half of the capital we put in, when the time comes. The "plan" is to fund 2 years of their education and then they'll have to pay for the rest. My wife and I both paid for our educations out of our own pockets and I think it will be a good experience for them on budgeting, the value of money, hard work etc. It was for us. In my mind a degree is worth much more if you paid for some (or all) of it yourself.
> 
> Since they're both boys I expect they will live at home throughout their post-secondary education, so tuition, books and a bus pass will be their only school expenses. Internet say the average tuition is $6500/year in Canada so the amount we're putting away should be plenty for 2 years.
> 
> If they excelled and wanted to go for a Ph.D. or something like that, or if there were extenuating circumstances, we would definitely help out more.


I used to think that a degree was worth more of you paid for it yourself. I paid for most of mine myself and stopped at an undergrad because I didn’t want to get into more student debt. I Have seen my niece and nephews become insanely successful and graduate with no debt because that was the gift their parents gave them. Seeing how my niece and nephews are, we decided that we would do that same as long as our kids worked hard at their studies, and are learning to be come good humans to society. We planned that we will pay for their undergrad and up to their masters. If they don‘t to go further than the undergrad we will help launch them out when they are 25. 

To incent our kids, we have told them that we expect them to apply for as many scholarships as they can. Any money left over the accounts will be theirs for their first house or next stage on life. 

That’s what all our retirement planning is based on. We have told them not to expect anything for an inheritance when we die (though I am sure there will be one) and we are giving them a living inheritance of a head start our of school with no debt. 

curious on why you think that boys should live at home? Would it be different if it was girls?


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## fourtwenty (Jan 9, 2021)

Plugging Along said:


> I used to think that a degree was worth more of you paid for it yourself. I paid for most of mine myself and stopped at an undergrad because I didn’t want to get into more student debt.


My wife finished her 4-year degree without a penny of debt. I couldn't qualify for OSAP my first try at college because my parents made too much $ but had none to give me. I was old enough my second time around that I qualified and had to pay back $14k. I learned a LOT about finances as a result. I would never let the fear of debt stop my kids from getting an education but I also don't want to give them a free ride. They need to understand the value of money and hard work.



Plugging Along said:


> curious on why you think that boys should live at home? Would it be different if it was girls?


It's not that I think they should, trust me the sooner they move out the better  . My wife and I just think our boys are more likely to stick around to get the perks of living at home. Things like meals, access to laundry without having to leave the house, free rent etc. whereas girls may want their "freedom" sooner. We're just basing that on our own experiences and what we know of our kids. I was not at all espousing a sexist attitude although I can see how it could be interpreted that way.


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## Plugging Along (Jan 3, 2011)

fourtwenty said:


> I assume what you mean here is that the child would apply the tuition receipt to their tax return, but wouldn't it be more efficient to have the parent process the tuition tax treatment on the parents tax return instead, or can you not get away with that if you are using RESP grants for the tuition?


I believe the max a student transfer to their parents is $5k. I don’t know the going rate of tuition these days but I think it’s more than that. The student can also carry forward But it makes sense to me to try and draw out what we can tax free.


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## Plugging Along (Jan 3, 2011)

fourtwenty said:


> My wife finished her 4-year degree without a penny of debt. I couldn't qualify for OSAP my first try at college because my parents made too much $ but had none to give me. I was old enough my second time around that I qualified and had to pay back $14k. I learned a LOT about finances as a result. I would never let the fear of debt stop my kids from getting an education but I also don't want to give them a free ride. They need to understand the value of money and hard work.
> 
> 
> 
> It's not that I think they should, trust me the sooner they move out the better  . My wife and I just think our boys are more likely to stick around to get the perks of living at home. Things like meals, access to laundry without having to leave the house, free rent etc. whereas girls may want their "freedom" sooner. We're just basing that on our own experiences and what we know of our kids. I was not at all espousing a sexist attitude although I can see how it could be interpreted that way.


Both my spouse and I were brought up to be debt adverse and to just ‘get out there and make money asap’. I didn’t even consider post grad programs because of the money and for me that was probably a mistake. My spouse almost made the same mistake but we saved and found a way for him to pay for it. mh niece graduated when the economy was awful, 2009, and because her parents had the means, she was able to go right to a post graduate. Many of her friends found any Job just to get on. She has far surpassed them career wise in the time she spent getting her masters. Similar thing with my nephews. We just want our kids to have the same options, and they know that we delay retirement if they want to pursue a higher education that will help them. Currently one wants to go into law and other maybe medicine, so we have said to go for it. My parents gave me the ability to get an education by immigrating to Canada, we wan to give out kids the equivalent gift. 

Thanks for the clarification of the genders. I understand you meant for your kids. My girls both do both want to go away, but so do my nephews, I wanted tl Go away but couldn’t afford to do so. Maybe it is a gender thing. however, my kids haves been expected to cook and do they’re laundry since about 10 and now cook family meals. So maybe that’s why they want to move out.


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## fourtwenty (Jan 9, 2021)

Plugging Along said:


> Both my spouse and I were brought up to be debt adverse and to just ‘get out there and make money asap’. I didn’t even consider post grad programs because of the money and for me that was probably a mistake. My spouse almost made the same mistake but we saved and found a way for him to pay for it. mh niece graduated when the economy was awful, 2009, and because her parents had the means, she was able to go right to a post graduate. Many of her friends found any Job just to get on. She has far surpassed them career wise in the time she spent getting her masters. Similar thing with my nephews. We just want our kids to have the same options, and they know that we delay retirement if they want to pursue a higher education that will help them. Currently one wants to go into law and other maybe medicine, so we have said to go for it. My parents gave me the ability to get an education by immigrating to Canada, we wan to give out kids the equivalent gift.
> 
> Thanks for the clarification of the genders. I understand you meant for your kids. My girls both do both want to go away, but so do my nephews, I wanted tl Go away but couldn’t afford to do so. Maybe it is a gender thing. however, my kids haves been expected to cook and do they’re laundry since about 10 and now cook family meals. So maybe that’s why they want to move out.


Sounds like you have some great kids. If either of mine wanted to go into law or medicine or the like I would have no problem supporting that financially. If you reach a point where those are legit career goals you've already proven you're a hard worker plus the workload with those types of educations don't lend well to working a part-time job at the same time. 

Right now both of my kids want to be youtube celebrities lol!


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## Bananatron (Jan 18, 2021)

With respect to withdrawing the Grant and "interest" portion - is there a time limit you could retroactively claim the education?

I'm thinking say your kid starts school in the middle of a 25% market correction. Could one choose to pay out of pocket and retroactively claim the grant 2 or 3 years later, of course considering tax implications?


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## Plugging Along (Jan 3, 2011)

fourtwenty said:


> Sounds like you have some great kids. If either of mine wanted to go into law or medicine or the like I would have no problem supporting that financially. If you reach a point where those are legit career goals you've already proven you're a hard worker plus the workload with those types of educations don't lend well to working a part-time job at the same time.
> 
> Right now both of my kids want to be youtube celebrities lol!


I think they are pretty great, but I am pretty biased. They grade 6 and 9 so still So much will change. the Oldest is just starting to apply to high school so we had to start seriously talking about university. The both take school seriously but don’t very hard so we will see.

I wanted to go to law school and my parents told me they would not be have the means. So I went to business school thinking I would go back after I saved mover. It was hard to leave a pay check and career climbing, so I never went. i didn’t go because money was the concern, I don’t want that to stop my kids. They are much smarter than I ever was.


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## Just a Guy (Mar 27, 2012)

We’ve got a large resp, but my kids don’t know that...they are expected to get jobs, scholarships and work hard. If they knew how much was sitting there for them, they’d probably have a different attitude. I don’t want entitled kids.


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## Tostig (Nov 18, 2020)

Just a Guy said:


> We’ve got a large resp, but my kids don’t know that...they are expected to get jobs, scholarships and work hard. If they knew how much was sitting there for them, they’d probably have a different attitude. I don’t want entitled kids.


Sounds reasonable. However, they'll catch on when you start withdrawing from the RESP to pay the tuition.


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## Just a Guy (Mar 27, 2012)

True, but they didn’t grow up expecting it. My oldest invested in rentals to make money to pay his rent so he could go to a special program out of town. My youngest has plans to pay for her education. they all have a high net worth, but they were brought up not knowing it. They were given an opportunity to build their own wealth and have done a good job of it.

there is a general rule that, the first generation makes the money, the second preserves it, and the third generation blows it. I raised my kids to be the first generation, even thought they are the second.

Neither parents, nor the government, is there to bail them out.


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## Plugging Along (Jan 3, 2011)

Bananatron said:


> With respect to withdrawing the Grant and "interest" portion - is there a time limit you could retroactively claim the education?
> 
> I'm thinking say your kid starts school in the middle of a 25% market correction. Could one choose to pay out of pocket and retroactively claim the grant 2 or 3 years later, of course considering tax implications?


When you the money out of the RESP you have to designate if it’s the CESG, gains, or contribution. they pay tax the year it comes out. I don’t think you can decide retro actively to take out money after they graduate. if you are worried about 25% dips, you may want to check your allocations.


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## Bananatron (Jan 18, 2021)

Plugging Along said:


> When you the money out of the RESP you have to designate if it’s the CESG, gains, or contribution. they pay tax the year it comes out. I don’t think you can decide retro actively to take out money after they graduate. if you are worried about 25% dips, you may want to check your allocations.


You're sure about that? Lets say your kid decides to go to a two year tech school, and you were going to split the CESG and gains portion evenly over the two years. He finds employment after the first year. Are you SOL, or is there a grace period where you can withdraw the remaining CESG and gains portion?

As for the asset allocation - my oldest is 9 so I'm not too worried about it right now, but the answer to my query would certainly shape the portfolio in the future. 

If I could retroactively claim expenses up to say 5 years from the date of education I would have no problem with 80% equities. If, for example it has to be withdrawn on the year of education only, obviously I would have to readjust.


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## Bananatron (Jan 18, 2021)

Just a Guy said:


> We’ve got a large resp, but my kids don’t know that...they are expected to get jobs, scholarships and work hard. If they knew how much was sitting there for them, they’d probably have a different attitude. I don’t want entitled kids.


Excellent advice. My kids will have a topped up RESP at their disposal but I would rather keep that information from them. There was an old saying that went like "easy come easy go". If they knew they didn't have any financial obligations for post secondary school, they may spend - and study - accordingly.


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## fireseeker (Jul 24, 2017)

Plugging Along said:


> When you the money out of the RESP you have to designate if it’s the CESG, gains, or contribution. they pay tax the year it comes out.


To clarify, there are only two kinds of withdrawals from RESPs when paying for education expenses:
1) EAP (Educational Assistance Payment): This includes both CESG and gains in a proportion determined by your FI. You cannot choose to receive only grant money or only gain money. EAPs are taxable in the hands of the beneficiary.
2) PSE (Post-Secondary Education Payment): This is the after-tax money deposited by the subscriber. It can be withdrawn at any time without tax.

FAQs from RBC 



Bananatron said:


> Lets say your kid decides to go to a two year tech school, and you were going to split the CESG and gains portion evenly over the two years. He finds employment after the first year. Are you SOL, or is there a grace period where you can withdraw the remaining CESG and gains portion?


You can't withdraw EAP money if the beneficiary isn't in school. You could try, I suppose -- your FI will probably only ask for proof of enrollment during the first year for the initial withdrawal. So, you may get away with it, but it's not what is supposed to happen.

Instead, you could intentionally drain the EAP in the first year. You are limited to $5,000 in the first 13 weeks of the school year, but after that you could pull the remainder if it doesn't exceed $20,000. You do not need to provide proof of expenses under that threshold. 
Of course, the beneficiary will have to pay tax on the whole amount. If they have a decent amount of their own earnings, this could result in more taxes paid. But they will still almost certainly be in the lowest tax bracket. If the beneficiary has no earnings and there is less than $20,000 in EAP in the account, this is a very attractive strategy.

You could also just leave the unused EAP money in the account. RESPs can remain open for 35 years. Maybe the beneficiary will one day return to school, or seek some advanced credential. The RESP money can be used for a wide range of programs -- not just college or university.


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## Bananatron (Jan 18, 2021)

fireseeker said:


> To clarify, there are only two kinds of withdrawals from RESPs when paying for education expenses:
> 1) EAP (Educational Assistance Payment): This includes both CESG and gains in a proportion determined by your FI. You cannot choose to receive only grant money or only gain money. EAPs are taxable in the hands of the beneficiary.
> 2) PSE (Post-Secondary Education Payment): This is the after-tax money deposited by the subscriber. It can be withdrawn at any time without tax.
> 
> ...


Thank you. This definitely shapes my risk tolerance for the RESP's as you can't "wait out the storms" like you can with traditional investments.


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## AltaRed (Jun 8, 2009)

The EAP payments are best used DURING the individual's education years for the simple reason that person's other income is likely to be low and the tax burden will be the least. Hence the reason why to go conservative leading up to the first year of education expenses. 

People tend to get a bit too greedy on what they try to squeeze out of the RESP. They are already getting a 20% uplift to their investment via CESG plus some market growth for several years. Why continue to roll the dice?


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## Bananatron (Jan 18, 2021)

AltaRed said:


> The EAP payments are best used DURING the individual's education years for the simple reason that person's other income is likely to be low and the tax burden will be the least. Hence the reason why to go conservative leading up to the first year of education expenses.
> 
> People tend to get a bit too greedy on what they try to squeeze out of the RESP. They are already getting a 20% uplift to their investment via CESG plus some market growth for several years. Why continue to roll the dice?


Fair point and observation.


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## Plugging Along (Jan 3, 2011)

Bananatron said:


> You're sure about that? Lets say your kid decides to go to a two year tech school, and you were going to split the CESG and gains portion evenly over the two years. He finds employment after the first year. Are you SOL, or is there a grace period where you can withdraw the remaining CESG and gains portion?
> 
> As for the asset allocation - my oldest is 9 so I'm not too worried about it right now, but the answer to my query would certainly shape the portfolio in the future.
> 
> If I could retroactively claim expenses up to say 5 years from the date of education I would have no problem with 80% equities. If, for example it has to be withdrawn on the year of education only, obviously I would have to readjust.


I cannot find it, but I was told or read that the student needs to out the grant money within six months after they are out of school. After that, the CESG is Returned once account has to be closed (36 years). the student can still take out the CESG even if they get employment. my nieces and nephews did that. They just have pay tax on it which is better than completely losing the grant. 

My oldest is just entering high school this year, so we have been really looking into how they will with draw. We expect there will be some scholarships, and have decided that we will work on with drawing the CESG portion as quickly as possible, as that money must go to the student. The gains we are trying to determine the best way to with draw them to minimize the tax impact between kids, but there is still flexibility to transfer that in to rrsps.


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## Plugging Along (Jan 3, 2011)

fireseeker said:


> To clarify, there are only two kinds of withdrawals from RESPs when paying for education expenses:
> 1) EAP (Educational Assistance Payment): This includes both CESG and gains in a proportion determined by your FI. You cannot choose to receive only grant money or only gain money. EAPs are taxable in the hands of the beneficiary.
> 2) PSE (Post-Secondary Education Payment): This is the after-tax money deposited by the subscriber. It can be withdrawn at any time without tax.
> 
> FAQs from RBC


thanks for the clarification. I though you had to track the CESG amount separately because if they student doesn’t use that, it needs to be returned.


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## AltaRed (Jun 8, 2009)

While on the subject of RESPs, it is also important to have instructions on whether the RESP survives the death of the subscriber (or last to die in the case of a joint RESP). A RESP is not a formal trust in that it can have a beneficiary designation like a RRSP or TFSA can have. Some institutions have a 'successor subscriber' form while most don't. Regardless, any such wish should be a provision in one's Will.
Assante says it well


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## ian (Jun 18, 2016)

I had no debt when I finished. Partly due to a well paying union job with lots of overtime. And of course another part time job throughout the year. We were in the position to fund both our children's edu.

The one gift we want to leave with our grandchildren is the ability to entertain any sort of post secondary or post graduate education without financial constraints or debt at the conclusion of their studies. This desire takes a pre-eminent place in our wills should we drop dead tomorrow. It is not a free ride but we do not want money to inhibit their decision.


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## fireseeker (Jul 24, 2017)

Plugging Along said:


> I cannot find it, but I was told or read that the student needs to out the grant money within six months after they are out of school. After that, the CESG is Returned once account has to be closed (36 years). the student can still take out the CESG even if they get employment. my nieces and nephews did that. They just have pay tax on it which is better than completely losing the grant.


PA, you are correct about the six-month grace period.



> A beneficiary is entitled to receive EAPs for up to six months after ceasing enrolment, provided that the payments would have qualified as EAPs if the payments had been made immediately before the student's enrolment ceased.


Source: GofC on EAPs




Plugging Along said:


> thanks for the clarification. I though you had to track the CESG amount separately because if they student doesn’t use that, it needs to be returned.


I believe the government rules are purposely meant to prevent someone from a sham enrollment and immediate siphoning of the entirety of the grant money.

If the RESP has $7,200 in grants, plus $14,400 in gains, the first EAP withdrawal will be set at 33% grant and 66% gain by the financial institution. The percentages will keep changing as the grant/gain ratio changes.

The upshot is that you can't drain all the grant money without also draining all the income money, which would leave the RESP with just the original deposits (PSE).


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## Plugging Along (Jan 3, 2011)

fireseeker said:


> PA, you are correct about the six-month grace period.
> 
> 
> 
> ...


I did not realize the withdrawals for the EAP was prorated between grant and gains. What happens if there are two kids and there will be additional gains for the second child. whag Of one child needs more than the other? Does that mean that one child can get more of the CESG? Does that matter?


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## Bananatron (Jan 18, 2021)

Plugging Along said:


> I did not realize the withdrawals for the EAP was prorated between grant and gains. What happens if there are two kids and there will be additional gains for the second child. whag Of one child needs more than the other? Does that mean that one child can get more of the CESG? Does that matter?


One would assume the ratios would simply change and yes one child may get more cesg while the other would get more gains.

I don't know for certain - just an educated guess.

The 6 month grace period would certainly cover the "one year and early employment tech school" scenario that I used, but not the "market dump and I need to wait for it to recover" second scenario.


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## fireseeker (Jul 24, 2017)

Plugging Along said:


> I did not realize the withdrawals for the EAP was prorated between grant and gains. What happens if there are two kids and there will be additional gains for the second child. whag Of one child needs more than the other? Does that mean that one child can get more of the CESG? Does that matter?


My experience is only with an individual plan. I'm not sure about family plans, but I believe that each kid can only get $7,200 in grant money.

This is a pretty good write-up about withdrawals from a family plan.


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## ian (Jun 18, 2016)

My understanding is the same. Max. $7,200 in grant money per child. 

I would like to see that number updated, at the very least to take into account inflation since that number was first established.


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## MrMike (Sep 30, 2020)

fireseeker said:


> My experience is only with an individual plan. I'm not sure about family plans, but I believe that each kid can only get $7,200 in grant money.
> 
> This is a pretty good write-up about withdrawals from a family plan.


I've heard that's not the case. With a FRESP, yes, each child can only receive $7,200 but it's a pool after that. Meaning for my 2 boys, I'll have a total of $14,400 and THAT can be divided however between the 2 children. So 1 could get $10K while the other uses $4.4K.


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## fireseeker (Jul 24, 2017)

MrMike said:


> I've heard that's not the case. With a FRESP, yes, each child can only receive $7,200 but it's a pool after that. Meaning for my 2 boys, I'll have a total of $14,400 and THAT can be divided however between the 2 children. So 1 could get $10K while the other uses $4.4K.


Do you have a source for that?

Everything I have read, including the link above as well as this one from AGF, say grant withdrawals are capped at $7,200 per child.



> CESG paid into a Family Plan RESP may be used by any beneficiary of the RESP to a lifetime maximum of *$7,200* per beneficiary – this includes both the Basic and Additional CESG


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## MrMike (Sep 30, 2020)

fireseeker said:


> Do you have a source for that?
> 
> Everything I have read, including the link above as well as this one from AGF, say grant withdrawals are capped at $7,200 per child.


Just to be clear, this is for a Family Registered Education Plan, FRESP. This does not apply if you have 2 RESP (individual accounts).

Family RESPs: How they work and why you would choose one
"The benefit of family RESPs, John, is that both grants and growth can be allocated amongst any beneficiaries of the plan. So, if one child does less or cheaper post-secondary education than another, you can use more of the RESP funds for one child and less for another. "


.... I can't find anything on canada.ca about FRESP, only RESP but I opened a FRESP with Questrade... i know they exist. 

Questrade FRESP
"Flexibility in withdrawals per beneficiary "


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## fireseeker (Jul 24, 2017)

MrMike said:


> "Flexibility in withdrawals per beneficiary "


I am not an accounting pro, and can't claim to know the rules perfectly.
But I suspect our discussion is turning on what "flexibility" means. This explanation from PWL Capital is the best I've come across at clarifying the grant flexibility.



> Let’s say you have two beneficiaries that are siblings in a family plan, Alex and Brenda. When Alex’s parents contributed to the RESP, he received $5,000 in grants from the government by the time he turned 18. Brenda received the full $7,200 in CESG’s since she was younger when their parents started contributing. Therefore, there is a total of $12,200 in grants that can be shared between Alex and Brenda. When withdrawing from the RESP, Alex could receive up to $7,200 in CESG, even though he only earned $5,000. If he received $8,000 in grants, he would owe the government the difference between what he was paid and the maximum $7,200, or $800. On the flip side, let’s say Alex received only $3,000 total grants throughout his schooling based on how the withdrawals were requested. If he’s already done school, that means that if Brenda depletes the RESP, she’ll owe $2,000 to the government. This is because she received the remaining $9,200 in grants from the RESP, more than the maximum limit of $7,200. This highlights the fact that with family RESP’s, beneficiaries or subscribers need to keep track of the withdrawals to ensure beneficiaries don’t receive more than $7,200 in grants. If they do as a result of sharing the grants between siblings or cousins, the beneficiary will be required to repay the excess to the government. This becomes even more important and tedious when there are multiple RESP’s set up for a student.


Bottom line: Clarify grant use rules carefully with your financial institution before commencing withdrawals.


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## Just a Guy (Mar 27, 2012)

From my understanding, there are two things to think about with an resp. The contribution and the grant. There are restrictions on the grant money, like you can only take out part in the first few months, it must go to only one child, etc. but there aren’t restrictions on the contributions (the money you put in and the gains).


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