[larry macdonald]

I'm doing some research into how people invest for their children's post-secondary education. It seems TD e-Series index funds within an RESP are a popular choice. Anyone doing it differently? What about other options outside an RESP like universal life insurance policy, group scholarship plans, pay off debt now to free up cash flow during university years, in-trust accounts, CTB/UCCB invested in account, monthly income funds, tax-advantaged mutal funds, TFSA, age 40 trust etc. Is anyone using them instead or as supplements?

 

[scomac]

While we were in the accumulation phase we made regular monthly contributions into a monthly income fund in our kids RESP. The gov't grant money went into this as well. We contributed $2000/yr./child in order to collect the maximum gov't grant. Once the oldest was within a year or two of post secondary we began to convert a portion of the assets into a bond ladder to cover the withdrawals for the oldest's undergraduate studies. When we quit making contributions, we then converted the balance of the funds into additional rungs in the bond ladder. This was our strategy and it has served us very well.

 

[Berubeland]

I am low income so I get all the additional top ups. I have chosen to deposit all my monthly CCTB and UCCB and all the monies the government sends me into the RESP set up with Investors Group. I was thinking of doing a self directed RESP but then you cannot get the other top ups given by the government all you can get is the regular 20% grant.

I have it preauthorised payments for the 21st of the month the day after they deposit the Baby Bonus money.

So far I have contributed around $7500 and gotten over $10,000 in there. I made 6 % on the overall investment.

 

[Dr_V]

Anyone doing it differently?

I'm planning (as in: I filled out the paperwork, I just haven't submitted it yet) on setting up a self-directed RESP at TD Waterhouse for my 7-week old son. (All of my investments are currently self-directed, and I feel very comfortable doing this.)

My plan is likely to hold a fairly conservative mix of blue chip, dividend-paying stocks for the first ~10-15 years, and as he approaches college/university age, I'll probably begin rolling money over into less volatile assets.

 

[MoneyGal]

Berubeland:

The UCCB is taxable in the hands of the lower-earning-spouse, no matter where the money ends up (inside an RESP or not).

The CCTB is non-taxable income, so there's no particular advantage to depositing it in an RESP.

A self-directed RESP does not attract fewer grants than an IG RESP.

I don't know where you heard this info, and I worry it might have been from your IG salesperson...

 

[CanadianCapitalist]

A self-directed RESP does not attract fewer grants than an IG RESP.

I don't know where you heard this info, and I worry it might have been from your IG salesperson...

Actually, unless something changed recently, it does. TD Mutual Funds, for instance, is set up to receive the 20% CESG but not the additional grants available for low-income households.

http://www.hrsdc.gc.ca/eng/learning/education_savings/publicsection/new_promoter_list.shtml

 

[MoneyGal]

Sorry, CC; I understood the OP to indicate that somehow UCCB and CCTB are components of his RESP contribution which are not available elsewhere.

To the best of my knowledge, either you are eligible for the enhanced grant, or you are not; and the HRSDC list simply indicates which providers are set up to automatically apply for and deposit the grant (as opposed to the parent applying and then having the grant money issued and deposited).

When I was an advisor, I worked at a brokerage on the IDA platform. RESPs were our least favourite kind of account to open, because they involve an immense amount of paperwork and they are relatively small.

It isn't surprising to me to read that the companies that *only* offer RESPs are, of course, set up to automatically apply for etc. the enhanced grants.

I'm going to check my assumptions about this and come back later. Now, off to soccer practice!

 

[Four Pillars]

Self-directed RESP accounts are definitely eligible the "extra" resp grants. Not all companies provide them however.

As CC pointed out the TD efunds resp does not allow for the extra grants. I believe the normal TD mutual fund account does allow these extra grants (but you can't buy cheap efunds in that account) and there is a monthly fee? RBC direct is another one that doesn't offer these grants. Questrade does allow the extra grants in their RESPs.

I suspect that if you are eligible for the extra grants then you might be better off with more expensive mutual funds (even at IG) rather than TD efunds (which would mean foregoing the extra grants).

Best thing to do would be shop around - IG has some of the highest MERs around. There has to be something cheaper that pays the extra grants.

 

[Dana]

Real Estate

Our kids have RESPs - though we haven't been diligent about maxing them out. We have also purchased income property for our kids futures. Our reasoning is this:

• they properties will be paid off when each child is finishing high school
• They can use the income from the property to cover their expenses or
• they can sell the property and use the proceeds to fund their endeavors or
• they can live in one unit and use the cash flow from the others (the properties are multi-residential)

Not everybody pursues traditional post-secondary education and we want our kids to have an option should they decide to go into business for themselves, work/learn abroad, or pursue graduate programs that their RESPs and other savings wouldn't have covered.

This seemed like the right solution for us...

 

[CanadianCapitalist]

To the best of my knowledge, either you are eligible for the enhanced grant, or you are not; and the HRSDC list simply indicates which providers are set up to automatically apply for and deposit the grant (as opposed to the parent applying and then having the grant money issued and deposited).

That's interesting. I didn't know that parents can apply and have the grant money issued and deposited into the RESP account themselves. Anybody know how this is done (i.e. which forms should be filled out and the logistics of how to get the grant money deposited into the RESP account)

 

[HaroldCrump]

That's interesting. I didn't know that parents can apply and have the grant money issued and deposited into the RESP account themselves. Anybody know how this is done (i.e. which forms should be filled out and the logistics of how to get the grant money deposited into the RESP account)

Hi CC,
I did this earlier this summer.
My RESP A/C is with i*Trade and it was relatively easy to do so using their forms.
The forms are available here:
https://www.scotiaitrade.com/pages/home/formsb.shtml
Once it is sent to the institution, they fwd to CRA and everything is set up correctly.
You need to ensure that the primary holder of the RESP A/C is the same spouse that is receiving the CCTB payments.
You may open a joint RESP A/C but the receipient for the CCTB must be the primary account-holder.
This is true for single beneficiary as well as family plans.

 

[HaroldCrump]

I'm doing some research into how people invest for their children's post-secondary education. It seems TD e-Series index funds within an RESP are a popular choice. Anyone doing it differently? What about other options outside an RESP like universal life insurance policy, group scholarship plans, pay off debt now to free up cash flow during university years, in-trust accounts, CTB/UCCB invested in account, monthly income funds, tax-advantaged mutal funds, TFSA, age 40 trust etc. Is anyone using them instead or as supplements?

Hi Larry,
We opened RESP accounts for our kids this summer.
This year's contribution and grant is still sitting as cash, but I plan to deploy early next year.

My plan is as follows:
- Build a bond ladder of good-quality bonds with the contribution portion of the account. Keep bond duration short (i.e. 5 years or less).
- Every year keep purchasing bonds as above. Time required for bond selection will be a few days of research and screening every year.
- Invest the CESG grant portion (20% up to the limit) into an equity index (XIU most likely).
Time to invest and monitor this component is fairly minimal.
- As education time gets closer, downsize the equity index and move into cash or very safe Govt. bonds.

This is only a plan for now.
I'll have to wait and see how well this works out and whether I'm able to keep up the contributions year after year.

 

[CanadianCapitalist]

Hi CC,
I did this earlier this summer.
My RESP A/C is with i*Trade and it was relatively easy to do so using their forms.
The forms are available here:
https://www.scotiaitrade.com/pages/home/formsb.shtml
Once it is sent to the institution, they fwd to CRA and everything is set up correctly.
You need to ensure that the primary holder of the RESP A/C is the same spouse that is receiving the CCTB payments.
You may open a joint RESP A/C but the receipient for the CCTB must be the primary account-holder.
This is true for single beneficiary as well as family plans.

Thank you Harold. I sometimes receive questions on how to get extra grants if the account is not set up to receive it automatically. Now, I know where to point them

 

[Four Pillars]

Thank you Harold. I sometimes receive questions on how to get extra grants if the account is not set up to receive it automatically. Now, I know where to point them

I think this was more or less answered by Harold Crump but I want to emphasize that you don't apply directly to the government for any of these grants. You always have to go through your RESP provider and they will forward the forms to the HRSDC for approval.

I believe form SD 0071 is the one normally used for the basic grant plus additional grants. You can find the government forms here:

http://www.hrsdc.gc.ca/eng/learning...ications_resources/promoter/forms/index.shtml

If someone is looking to set up an RESP the main points to know are:

Does the RESP provider offer the extra grants (if applicable). If yes then make sure they fill out the forms with that in mind and make sure you are getting the extra grants.

 

[HaroldCrump]

Does the RESP provider offer the extra grants (if applicable). If yes then make sure they fill out the forms with that in mind and make sure you are getting the extra grants.

I take it that by "extra grants" you mean CLB and other top-ups for low income families?
If so, those are automatic based on your previous year's tax returns.
Once CRA has received your RESP account information, from that point on, everything should be automatic.
Just like the CCTB - they adjust that upwards or downwards every year based on your tax return.

 

[CanadianCapitalist]

I'm confused now. This HRDC page mentions which promoters are set up to receive all the grants one is eligible for:

http://www.hrsdc.gc.ca/eng/learning/education_savings/publicsection/new_promoter_list.shtml

Some of the promoters (such as the asset management arms of the big banks) are not set up to receive *all* the grants. Doesn't it mean that supplying the promoter with another set of forms won't help? Curiously, iTrade or E*Trade doesn't seem to be listed in that page.

 

[FrugalTrader]

A slightly different train of thought, but if I wanted to contribute to my nephews RESP, can I contribute directly without having to write a cheque to his parents to deposit?

 

[HaroldCrump]

A slightly different train of thought, but if I wanted to contribute to my nephews RESP, can I contribute directly without having to write a cheque to his parents to deposit?

You will need to formally open an RESP account with your nephew as a beneficiary.
You need this form:
http://www.docs.scotiaitrade.com/pdf/etca_CESG_other_eng.pdf

 

[OhGreatGuru]

... What about other options outside an RESP like universal life insurance policy, group scholarship plans, pay off debt now to free up cash flow during university years, in-trust accounts, CTB/UCCB invested in account, monthly income funds, tax-advantaged mutal funds, TFSA, age 40 trust etc. ...

Universal Life Insurance - not generally a good return on investment, and certainly not for RESP.

Group Scholarship Plans - If they're the ones I'm thinking of, they are pretty much passe since the advent of RESPs. Investors don't get their money (and earnings) back if the child doesn't go to post-secondary education; ROI is questionable.

Pay off debt to free up future cash flow? This is always a good consideration.

In-Trust accounts: can be complicated from a legal/tax point of view. RESPs are a lot simpler.

Monthly Income Funds, Tax-advantaged Funds. This isn't a question about how to save so much as what to invest in. Really a separate topic.

TFSA: At least use RESP first to maximize the federal grant. For contributions beyond that, TFSA makes sense, as offering more flexibility on who can withdraw, and withdrawals aren't taxable even in the hands of the student.

 

[Berubeland]

I'm confused now. This HRDC page mentions which promoters are set up to receive all the grants one is eligible for:

http://www.hrsdc.gc.ca/eng/learning/education_savings/publicsection/new_promoter_list.shtml

Some of the promoters (such as the asset management arms of the big banks) are not set up to receive *all* the grants. Doesn't it mean that supplying the promoter with another set of forms won't help? Curiously, iTrade or E*Trade doesn't seem to be listed in that page.

The financial institution which holds your RESP applies for all the grants you are eligible for.

Anyone can get the 20% CESG but if you are low income like me you get an extra $500 the first year for starting the RESP and an additional grant with every further contribution up to a certain amount.

I very carefully researched this issue and I did not find any company that offered self directed RESP that also was allowed to apply for the Canada Learning Bond and Canada Learning Bond Fee. They also would not offer the Additional Education Savings Grant.

TD did offer this but only with a GIC RESP. I can tell you I was exhausted by this time.... Investor's Group did apply for all the grants, they did not charge any fees whatsoever except the MER. The CLB alone is worth $500 plus $100 per year. I knew the guy and he beat the pants off the CST people who couldn't even tell me how much interest my money would earn. It drove me crazy, they just kept telling me over and over about how much the government was giving but would not even answer the question of how much interest that money would earn once it was in their tender care. To this day I have no idea how much and i met with that lady twice and called a few others. So for me the fact that the MER's were higher was irrelevant no MER could be higher than $500 CLB and additional savings grant.