RESP question

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gaspr
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RESP question

Post by gaspr » 22 Mar 2017 00:49

We have a RESP account @ Questrade for our granddaughter. I made this years' deposit in the first week of January and have been waiting for the CESG to show up. Finally inquired with a rep and he said that the reason why no grant has shown up was because they back dated my deposit to Dec 2016. I asked why they would do this and he seemed to have no idea. He is now working to correct the error. No big deal I guess but any ideas why they would do this?? Is it that unusual to make an annual deposit in January??

THEMAINEVENT
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Re: RESP question

Post by THEMAINEVENT » 22 Mar 2017 07:41

I've made my contributions on January 1st in each of the last 8 years and never had an issue. Grant is received end of February every year.

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Re: RESP question

Post by MortgageSlayer » 22 Mar 2017 08:36

I've made annual deposits to my kids RESP in January for many years without any problems. Having said that, we are talking about Questrade so screw-ups like these are expected from time to time. :rofl:

My advice will be to keep following up and escalate it to a supervisor if they don't fix it within a reasonable amount of time.

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Re: RESP question

Post by Thegipper » 07 Apr 2017 13:16

I have two grandchildren and our RESP was in a family plan. For 2016/17 we withdrew enough to pay for the schooling of one child for post secondary education. In withdrawing the funds all accumulated income and contributions were used up. It left a principle sum of 7k for the other child who will be in 16 in June and entering grade 10 in the fall. We have about $4400 in my wife's taxable account. We were thinking of cashing this in and contributing it to a single RESP for this girl. If we did this we could get about $840 in government contributions and have any growth accumulate tax free. I am not certain that this grandchild will be attending a post secondary institution. I understand that there may be restrictions making RESP contributions when children get older. Would appreciate any wise words of wisdom for this situation. The older girl will be finished with post secondary schooling this June.

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kcowan
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Re: RESP question

Post by kcowan » 07 Apr 2017 14:00

No contributions are allowed in the year the child turns 17. So you have one year plus make up this year.

If the child does not go to uni, your principal is returned without penalty and the government match and any earnings are returned to the government.
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Re: RESP question

Post by Thegipper » 07 Apr 2017 15:09

kcowan wrote:
07 Apr 2017 14:00
No contributions are allowed in the year the child turns 17. So you have one year plus make up this year.

If the child does not go to uni, your principal is returned without penalty and the government match and any earnings are returned to the government.
The government gets the earnings on the principal? I would think that goes back to the creator of the RESP and would be taxable in her hands.

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adrian2
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Re: RESP question

Post by adrian2 » 07 Apr 2017 17:58

kcowan wrote:
07 Apr 2017 14:00
No contributions are allowed in the year the child turns 17. So you have one year plus make up this year.
RESP contributions are allowed at any age (you can have an RESP of your own, should you really want it); no CESG is earned after the child turns 17.
kcowan wrote:
07 Apr 2017 14:00
If the child does not go to uni, your principal is returned without penalty and the government match and any earnings are returned to the government.
It does not have to be university, it can be one of many kinds of post-secondary education.
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Re: RESP question

Post by adrian2 » 07 Apr 2017 18:04

Thegipper wrote:
07 Apr 2017 15:09
kcowan wrote:
07 Apr 2017 14:00
No contributions are allowed in the year the child turns 17. So you have one year plus make up this year.

If the child does not go to uni, your principal is returned without penalty and the government match and any earnings are returned to the government.
The government gets the earnings on the principal? I would think that goes back to the creator of the RESP and would be taxable in her hands.
If the child does not pursue post-secondary education:
- the contributions go back intact to the trustee (parent)
- the CESG goes back to the government
- the remaining part (Accumulated Income payments) is either:
** subject to an extra 20% tax and is taxable to the parent, or
** no extra tax if transferred directly to the parent's RRSP (if room is available).
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Thegipper
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Re: RESP question

Post by Thegipper » 07 Apr 2017 19:20

A thank you to each of you for your information. I have a year to make up my mind. If it doesn't seem she will be pursuing some post secondary I will keep things simple. The 7k in the current RESP is almost totally contributions and would be simple to close if my granddaughter doesn't go on to higher education.

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Re: RESP question

Post by goleafsgo » 07 Apr 2017 23:11

To expand on Adrian2's point, it can also be used for education/training of certain employment. For example, trade school. Or, in my experience we were able to use leftover funds in a family plan to pay for my son's tuition at the Ontario Police College.

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kcowan
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Re: RESP question

Post by kcowan » 09 Apr 2017 10:45

To further add to Adrian's informative posts, the limit per child is $50000 in contributions. And the maximum CESG is $7200.

(My experience is that $50000 is a good number and using their contribution limits for CESG, you likely will come up short of funds unless you get lucky in the markets!)
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Descartes
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Re: RESP question

Post by Descartes » 13 Sep 2017 13:44

After having completed the funding of undergrad degrees for my eldest kids this month, for the benefit of anyone who has multiple kids (or grandkids) who may proceed into post-secondary education, here are some esoteric observations that may be of use:

Recall:
PSE = what you contribute. It is not taxable.
EAP = CESG (Canada Educational Savings Grant) + Investment income. It is taxable but in the hands of the beneficiary.

1. I can see *no* benefit to having multiple individual RESP plans versus a Family RESP plan if you have multiple beneficiaries.
To put it another way, there is much greater freedom in having a pool of money and, in particular, a pool of CESG rather
than having set amounts locked in per beneficiary:

a) The CESG is paid into the family RESP in the name of each beneficiary until that beneficiary turns 18.
The CESG may be used by any beneficiary, to a maximum of $7,200 per beneficiary.

b) With a Family Plan RESP you can name one or more children as beneficiaries, and add or change beneficiaries at any time.
If one of your children decides not to attend a post-secondary institution, your other children can make use of the funds.

c) You determine the allocation per beneficiary; e.g. if X has higher educational costs than Y then X can be given more.

2. All children in Canada up to the *end* of the calendar year in which they turn 17 are eligible to receive CESG; e.g. if the
child's 17th birthday was January 1 then you can "earn" CESG from a contribution made on December 31 - (lead time needed by provider to submit claim) of that year.

3. After the first 13 weeks of school, you control the portion of EAP that goes into a withdrawal payment.
However, you are *not* in control of the portion of CESG that makes up the EAP portion. This is determined by the provider of the RESP plan:
The CESG portion of the EAP will be based on the ratio of CESG paid into the plan to the total investment earnings and CESGs held in the plan,
and will reduce the remaining balance in the plan’s CESG notional account
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Re: RESP question

Post by canoer » 13 Sep 2017 20:06

So, we have maxed out TFSA, RRSP and made enough RESP deposits to get the maximum CESG - so 2500/ kids] / year. We still have a bunch of money to invest and am wondering if it makes any sense to make the max RESP contributions to have the money grow sheltered for the next 10-15 years?

The way I read the rules - Each child is allowed $50000 deposited into their RESP over the 18 years that contributions are allowed.
18*2500=45000$. Leaving $5000 / child of 'extra' contribution room. Which really isn't that much, I guess.
Child #1 is 11 which means we have 7 more years of contributions = $17500. So we could contribute 17500+5000= 22500$ today into a RESP for child number 1.
Is likely a better idea than making $2500 contributions for the next 7 years? If we make the contributions all at once, if I read it correctly, I miss out on the CESG money 7*500=$3500.

thoughts?

thanks
canoer

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kcowan
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Re: RESP question

Post by kcowan » 13 Sep 2017 23:43

I am going with the $2500 and topping up in the latter years to get to $50k. I missed out on the early years because the contribution was limited to $2000/child. If I was doing it again, I would do the over contribution in year 1. The $5k is just like an RESP and with 5 GCs, that is $25k.
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Re: RESP question

Post by gobsmack » 14 Sep 2017 03:12

canoer wrote:
13 Sep 2017 20:06
The way I read the rules - Each child is allowed $50000 deposited into their RESP over the 18 years that contributions are allowed.
18*2500=45000$. Leaving $5000 / child of 'extra' contribution room. Which really isn't that much, I guess.
You are forgetting that the lifetime grant limit for the CESG is $7200. Your 18 multiplier above should be 14.4 ($7200/$500). As a result, the extra contribution room is $50000 - (14.4 * $2500) = $14000 .

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Re: RESP question

Post by adrian2 » 14 Sep 2017 05:42

gobsmack wrote:
14 Sep 2017 03:12
canoer wrote:
13 Sep 2017 20:06
The way I read the rules - Each child is allowed $50000 deposited into their RESP over the 18 years that contributions are allowed.
18*2500=45000$. Leaving $5000 / child of 'extra' contribution room. Which really isn't that much, I guess.
You are forgetting that the lifetime grant limit for the CESG is $7200. Your 18 multiplier above should be 14.4 ($7200/$500). As a result, the extra contribution room is $50000 - (14.4 * $2500) = $14000 .
A simpler calculation leading to the same end result:

The maximum grant of $7,200 comes from 18 years of $400 annual grant.
Each such grant requires $2,000 annual contribution (this was the "normal" case when my kids had an RESP).
$2,000 x 18 years = $36,000 total contributions to obtain the maximum grant.
$50k - $36k = $14k "extra contribution room".

What has changed since my kids RESP's were closed is that the maximum annual grant was increased to $500 (from $400). The maximum total CESG has stayed at 18 x $400.
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kcowan
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Re: RESP question

Post by kcowan » 14 Sep 2017 08:37

adrian2 wrote:
14 Sep 2017 05:42
What has changed since my kids RESP's were closed is that the maximum annual grant was increased to $500 (from $400). The maximum total CESG has stayed at 18 x $400.
Thanks Adrian. I had never figured out why the maximum was that. Makes sense given that the program was designed by politicians.
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Re: RESP question

Post by Descartes » 14 Sep 2017 11:16

canoer wrote:
13 Sep 2017 20:06
So we could contribute 17500+5000= 22500$ today into a RESP for child number 1.
Is likely a better idea than making $2500 contributions for the next 7 years? If we make the contributions all at once, if I read it correctly, I miss out on the CESG money 7*500=$3500.
So, it seems from what you've said, you'll lose $1,700 of remaining CESG money if you do a lump sum deposit of $22,500 now for the 11 year old rather than keep to $2500 deposits for the next 3 years then do your lump sum deposit of the remainder in the fourth year whereby you can collect the $1,700.

On the one hand, you've got a "tax free" place to invest that $22,500 right now.
On the other hand, you've got a guaranteed "bonus" of $1,700 if you wait and, in the meantime, you can invest that $22,500 in a taxable account right now.

Since your $22,500 and your investing acumen are constants with either option you can factor them out of your decision.
What you're left with is: "are my tax savings on my proposed investments going to exceed $1,700 over that period of time?"
If yes, then go for it.
If no, then don't.
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adrian2
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Re: RESP question

Post by adrian2 » 14 Sep 2017 12:00

Descartes wrote:
14 Sep 2017 11:16
On the one hand, you've got a "tax free" place to invest that $22,500 right now.
On the other hand, you've got a guaranteed "bonus" of $1,700 if you wait and, in the meantime, you can invest that $22,500 in a taxable account right now.
Just to put in perspective the "tax free" place to invest that $22,500 right now:
Thanks to the Harper Tories initiative of creating the TFSA, each adult now has $5,500 per year tax free room. For two parents, that's $11k of tax free room each and every year.

Back to Descartes' two hands: personally, I'd take hand #2.
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