# RESP Contributions And A Tuition Benefit

Shortly after our daughter was born we opened up an RESP and began regular monthly contributions.  We didn’t start with much, just \$100 each month to go towards her post secondary education.

A few months later I changed careers and moved into the public sector, working at a University.  I had to sit through an entire day of orientation with Human Resources to explain the different types of benefits that I would be eligible for.  I’ll admit that I didn’t pay too much attention that day, but I did walk away with stacks of information that would come in handy later on.

### Tuition Benefit for Dependents

I found out that one of the more generous perks of working at a University is that your children are entitled to a minimum 50% reduction in tuition fees.  This benefit can be increased to a maximum of 100% tuition fee waiver, provided there are enough pooled funds to cover all of the students enrolled in this program.

Considering tuition fees make up the bulk of the costs to finance education at most schools, this is an extremely generous employee benefit.  Current full time students (10 classes over 8 months) at our school pay \$5,300 per year in tuition fees.  Multiplied over 4 years of studies and that comes to \$21,200.

Since my daughter is only two-years old, we need to factor in some inflation to those figures.  At a conservative increase of 2 percent each year, by the time she turns 18, her tuition costs might look like this:

• Year 1 – \$7,421
• Year 2 – \$7,570
• Year 3 – \$7,721
• Year 4 – \$7,876

Total tuition costs = \$30,588

Minimum 50% tuition reduction = \$15,294

If you factor in the cost of books and supplies at \$1250 per year, then we are looking at approximately \$20,000 to send our daughter to University.  This is assuming, of course, that she actually wants to go to school here and live at home.

### RESP Contributions

So back to the RESP contributions that we’ve been making for the past 2 years.  If we continue setting aside \$1,200/year into an RESP, plus \$240 from the Canada Education Savings Grant (CESG), and allowing for a conservative growth of 4%, by the time our daughter is 18 the RESP will be worth \$38,000.

Knowing that we are eligible for this tuition benefit, should we make any adjustments to our RESP contributions?  Are we saving too much?

I think it’s too early to tell.  16 years is a long time, who knows if I’ll still be working at the University, and even if I am, there may be changes made to the employee tuition benefit.  The other consideration is if our daughter wants to attend University in another city.  Shouldn’t we at least plan for that option?

### Final Thoughts

Working at a University definitely has its advantages.  Not only do I get to participate in a generous defined benefit plan, I also have a tremendous opportunity to send my child to post secondary for at least half the standard cost.

As a parent, I feel that it’s important to provide every opportunity for my child to succeed.  We are fortunate enough to be eligible for a benefit like this, but does it mean that our daughter’s future plans have been pre-determined?

Readers, what do you think?

1. Increase, decrease, or keep RESP contributions the same?
2. When the time comes, would you ‘strongly encourage’ your child to attend the school with the tuition benefit?
3. Any other suggestions?

Check out The RESP Book to understand how RESP accounts work and how to get one started, what kind of RESP account to set up and what kind of investments to buy.

1. David on August 1, 2011 at 1:47 pm

i’d most definitely increase the contribution to the max allowable amount each year to take FULL advantage of the CESG (20%). i look at it as making 20% return on the savings as i could never ever achieve that kind of rate of return with anyone nor anywhere else. then when you child attends university you can request to have the grant and the capital gain amount be disbursed first, then any left over amount likely will just be the after tax dollars you have put in in the first place and it can be rolled over to your RRSP account. Bonus retirement savings! if there is enough money saved for your child to attend another university and s/he wants to attend i’d not worry attending at the university where you work just to save 10/20 grand as it may not have what your child want to take, i.e. not every school has a medical degree.

• Echo on August 1, 2011 at 10:04 pm

@David – Since we’re living on one income we’re not really in a position to max out the RESP at the moment. My philosophy is to take care of my own finances before focusing too much on my children’s education. Besides, I can catch up on the unused grant money later on if I need to.

Good point about schools not offering the same programs, she may want a specialized degree.

2. retirebyforty on August 1, 2011 at 1:50 pm

That’s a great benefit. I would continue to contribute to the RESP. Who knows what will happen in 16 years. You can always transfer the RESP to another person right? (I don’t know the rule for RESP.)
2. Yes, I would strongly encourage the child to attend the school with tuition benefit as long as the university has the right program.

• Echo on August 1, 2011 at 10:08 pm

@retirebyforty – yes, we can transfer the RESP to another child. I think we have some employees at work who are counting on using this benefit for their children, and I don’t want to be in that position where that’s the only option. That being said, it’s a great benefit and a lot of money to turn down if she chose to go to another school.

3. My University Money on August 1, 2011 at 3:16 pm

We write quite a bit about RESPs, and I agree wholeheartedly with David. That tuition benefit is awesome, and would be a great boon to your daughter’s education, but with so much career change going on these days, who knows where you’ll be in that many years. The other thing is that she might want to go to school away from home which could mean a higher tuition and more living costs (which RESPs are nice to help out with as well). Finally, I’m not sure what your family situation is like, but you can always shift the RESP over to any other children you have with no penalty.

Here is what I would recommend. As a result of the fact you’re starting so early and are in an advantageous position in regards to tuition, you are in the perfect spot to take some increased risk in your RESPs. David is right, to not take the immediate CESG grant that is essentially an automatic 20% ROI is pretty crazy (compare it to paying down your mortgage), and with his efficient withdrawal methods it is pretty ideal. There are a few online brokerages now that allow you to trade within RESPs now. With stocks getting hit hard for the next year or so (at least) you could probably find some great entry positions and you’ll have a very long time horizon to gradually shift into more stable investments.

• Echo on August 1, 2011 at 10:14 pm

@My University Money – I think we all agree that 16 years is much too long to make plans to count on this benefit.

Regarding the CESG, as I mentioned to David we are not able to contribute enough to fully max out the RESP.

I like your point about being a bit more aggressive with the investments. With the longer time frame we should be doing this anyway.

4. R Winklareth on August 1, 2011 at 8:13 pm

1. It seems to me that the tuition benefit will be taxable..either to you or her…might be something you look into.
2. I have one daughter going to University in Toronto, it costs us approx \$22 000 per year for tuition, residence, meal plan (very expensive!!!) travel back & forth to Ottawa, books etc.
3. Daughter #2 studies in Ottawa…budgeted costs for books. bus passes, studies….\$9,000 and then throw on whatever you want for clothes and going out.
Either way you will likely need all that you have put into your RESP if your daughter goes for 4 yrs like mine.
I have a 3rd DS who is 15…I am maxing out my last 2 yrs at \$5000 .
I agree with David…keep putting the money in. The \$400 is taxable in the child’s hands…my take was to have my Ottawa DD who made almost nothing last year take all the grants (both Federal and QC where we live ) and then split the money between the 2 girls. The grant came in my daughter:s name and all the money I put in, came in a cheque to me so I had the control of what I did with the money. I also have a family plan (and left money in for DS) so it is also possible for me to pull everything out for the girls if my DS doesn’t go on…(1 DD plans to do her master’s…that’s why she stayed home for the BA).
I also took the Child tax credit (way back when I first started it was \$20 per month and I decided I didn’t really need it so I had it go into a special account in trust) I set up 2 DRIPS on the advice of my mother which I still have for them (at that time RESP’s were not very attractive and very limiting) which made the dividend taxable in my kids hands. I tried not to touch my child tax credits and I called it the education fund…it paid for orthodontics for 3 and all sorts of things plus their schooling…but the trick was to let it sit there and not touch it.

• Echo on August 1, 2011 at 10:23 pm

@R Winklareth – Yes, there are taxes to consider on the tuition benefit.

Thanks for sharing your situation with regards to sending your kids to post secondary. That’s quite the discrepancy between the local school and the out of town school.

I like your suggestion of deferring the child tax credit and setting up an education fund with it.

Lots to think about, especially with 3 kids 🙂

5. The Passive Income Earner on August 1, 2011 at 8:32 pm

1) I would continue. It’s so far down the road, you never know what may happen. Assume you don’t have anything from the University.

2) Your daughter will be wanting to have a say on the path to take. It’s going to be a matter of how you will present the options and which university can offer the program. Are you offering to cover all expenses as a parent, regardless of where your daughter goes?

3) My parents paid for all education for me and my brothers. We even studied in different provinces so the cost included the appartment, the meals and travel. This is something that parents need to decide because allowing your children to go away from home for university has a cost but also benefits. I am inclined to pass on that same benefit to my kids.

6. Echo on August 1, 2011 at 9:58 pm

@Lexington Law – I think you’re right, it’s still very early and we just need to keep contributing and see what happens down the road.

7. Echo on August 1, 2011 at 10:29 pm

@The Passive Income Earner – What about offering two options for my daughter when she’s ready to go to University:

We’ve saved \$40k for your 4 year education.

Option 1: If you attend the local University, you won’t have to work or take out any loans (graduate debt free)

Option 2: If you attend an out-of-town University you have to pick up the difference in cost by getting a part time job, scholarship, student loan, etc.

Of course, considering she already has me wrapped around her finger I might end up giving in to whatever she wants anyway 😉

• My University Money on August 2, 2011 at 7:46 am

This was kind of the preliminary plan I had in mind as well. I don’t need to pay for all of my kids’ schooling. I want them to have to work at least during the summers. But I also hope to get them out of school without student loans like I was able to.

8. Brad Mol on August 2, 2011 at 9:51 am

That’s a nice benefit to have Echo! Given the long time horizon, it’s probably best to continue as you are and maximize whatever you can with regards to the CESG. I also agree with My University Money about taking more risk in the RESP although that is a personal decision based on your tolerance. If you’re able to use the tuition benefit and there are excess funds in the RESP at the end, you can still withdraw them without penalty as long as your daughter is enrolled in post-secondary. The funds can be used for whatever you want after that (graduation gift, or to help other financial goals). If she goes to school out of town, as you said earlier, you’ve saved \$40k to contribute which is great.

• Echo on August 3, 2011 at 6:42 am

@Brad – I think you’re right, given the long time horizon we should just keep plugging along and collecting as much grant money as we can (20% is pretty solid). Thanks for your comment!

9. MM on August 2, 2011 at 10:26 am

Hi Echo,
Definitely a nice perk.
I think you hit the nail on the head for the question of increasing the RESP contribution…take care of your finances first (including retirement, better to have your child fund their education than care for you in retirement). If you can afford what you are doing, then keep doing it. The CESG is a great incentive to use the RESP.

I would assume you would strongly encourage your child to attend that university, but kids are kids, they’ll do what they want and as long as they are doing some education, I’d be fairly content.

I agree and disagree on increasing risk. Yes the time horizon is long but don’t take any risk you don’t want. It’s still money, and losing it is not fun. Definitely meet with someone and discuss your options, or educate yourself as best you can. Just be comfortable.

Also, don’t remember all is not lost if your child doesn’t attend university or post-secondary education. You may have the opportunity to roll it into your RRSP (maybe not with DB plan) or your wife’s, or as mentioned put towards another child. You don’t ‘lose’ the money if they don’t attend.

I think helping your child in any way is a great thing!

• Echo on August 3, 2011 at 6:46 am

@MM – Yes, I definitely want to make sure I’m accomplishing all of our financial goals as far as paying down our mortgage quickly and contributing to our TFSA’s before going crazy on the RESP contributions.

Regarding the investment risk, I would be comfortable having a higher equity component within the TD E-Series, and then bringing that down as she gets older.

Thanks for your great comment!

10. Jerry Coldwell on September 5, 2011 at 8:19 am

The fact that you work at a university sure helps. I guess that the rest of us will settle for grants or loans. 🙂

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