Weekend Reading: More RESP Clean Up Edition
A few months ago I wrote about some changes I plan to make to our kids’ RESP portfolio. We’ve used TD’s e-Series funds for this account, but will switch to an ETF portfolio using Justin Bender’s excellent RESP strategy.
Along with this portfolio reboot, I’ll also change how we fund the account (annually versus monthly). But I’m afraid I’ve lost track of their total contributions and grants after many years of benign neglect automatic monthly contributions.
I called the Canada Education Savings Program hotline at 1-888-276-3624 and requested a Statement of Account for each child (note, you have to ask for this to be mailed otherwise the agent will just read the numbers to you over the phone).
Once I had the total contributions and grants per child, I calculated each child’s share of the investment returns:
| Child | Contributions | Grant | Investment Growth | Total |
|---|---|---|---|---|
| Vanguard (14) | $26,000 | $5,200 | $16,905 | $48,105 |
| iShares (11) | $24,000 | $4,800 | $15,605 | $44,405 |
| Total | $50,000 | $10,000 | $32,510 | $92,510 |
I knew right away there was a problem. Our goal is to contribute $36,000 per child to attract the maximum CESG of $7,200 per child. But if we continue regular monthly contributions of $208.33 per child then our oldest is going to be short. By the end of the year in which she turns 17 we’ll have only contributed $34,125.
This makes sense because while we opened the RESP right after our oldest child was born, we did not contribute the maximum annual amount. We started with what we could afford, which was $50 per month. That gradually increased to $208.33 per month – but that took a few years.
We’re going to have to catch up on a missing grant by contributing $5,000 in January, 2024. That, plus a regular $2,500 contribution in 2025 and a contribution of $1,875 in 2026 will fully max out the CESG for our oldest child.
Meanwhile, we’re right on track to contribute $36,000 by the time our youngest child is 16. We’ll do annual contributions of $2,500 from 2024 to 2027, and then contribute $1,400 in 2028 (her age 16 year) to fully max out the CESG for our youngest child.
The lesson here for those of you who did not max out your RESP contributions in the first few years is to get that Statement of Account for each child so you know exactly where you stand today, and so you can make a plan to catch up on the unused grants before it’s too late.
According to the Government of Canada website, beneficiaries qualify for a grant on the contributions made on their behalf up to the end of the calendar year in which they turn 17 years of age.
This Week’s Recap:
Earlier this month I wrote about when life insurance is sold, not bought. Still fuming about that one…
A reminder that the Canadian Financial Summit is back for its seventh year with a great line-up of speakers.
This year’s conference takes place from October 18th to 21st. You can grab your free ticket here.
Promo of the Week:
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We’ve got an unbelievable trip lined up for next summer in England, France, Switzerland, and Italy. I’ll share more about that in a future post!
Weekend Reading:
The Globe and Mail’s Erica Alini says Canadians can expect to spend $350,000 to raise a child from birth to 17. I believe it.
Michael Lewis is under fire for taking it easy on Sam Bankman-Fried, the subject of his new book. Here’s where Lewis went wrong.
Why cash ETFs deliver great yields at this moment, but they are no long-term substitutes for classic fixed income funds.
PWL Capital advisors Dan Bortolotti and Justin Bender share a better way to compare bonds and GICs. Excellent analysis.
A must-watch video from Dr. Preet Banerjee on AI and voice cloning technology. Scary stuff!
Many financial advisers only work with wealthy clients. So where are the masses going for help? (hint: contact me).
Mark McGrath with a great explanation of the retirement torpedo – sequence of returns risk.
Jason Heath says these tips can help you avoid financial pain amid the emotions of losing a spouse.
Finally, Rob Carrick asks why is this retiree having so much trouble finding a financial planner to help him draw on his savings tax-efficiently? (subscribers).
Have a great weekend, everyone!
I’ve been lazy with RESP contributions, but in a different way. My son stopped receiving the government match last year as we had reached the max. I’ve continued to contribute to his account, with my reasoning being that the growth on those extra contributions will be taxed at a lower rate in his hands at withdrawal than they would be in my hands in my non-registered account.
Yes, I was somewhat worried about that too with our youngest. Still not a bad strategy to get up to $50k into that account for the reasons you stated.
After lengthy negotiations with our son and daughter-in-law we finally convinced them to leave the well known organization the often starts their sales pitch and sign up at the door of the maternity ward. We arranged to take over the entire responsibility for RESP for both Granddaughters. The system required that the first plan be cancelled, resulting in accrued government funding being remitted and taxes be paid. Despite attempts to convince the federal agency responsible, we were not successful in efforts to have the remitted funds returned to us despite recontributing our share and continuing to make semiannual contributions to maximize remaining government grant. That was our learning experience.
Hi Curt, thanks for sharing this. I’m sorry you had to go through that ordeal. These group RESP contracts can be so difficult and costly to break. I hope you’re able to get things back on track.
Rob. My daughter went to open up resp with BMO. They
Made it more difficult than needed and she just left.
They wanted a whole reveal of all her investments and assets.
All she wanted was an resp which they wouldn’t open
With all the extra info.
Couple questions!
1. Will you still be using TD direct investing for your family RESP account?
2. Do you care that you can’t buy fractional shares with TD?
We are with TD direct investing for our own investments but are considering opening up a WealthSimple RESP and transferring over our kids’ RESP account in mutual funds with our old financial advisor. Thought this might be worthwhile to avoid the $9.99 fee to buy ETFs at TD but also so that we can buy fractional shares. Following the strategy above, we would have to purchase four ETFs per year at $9.99 each (for our two kids). What do you think?
Hi Leanne, I’ve already made this switch and I’m still at TD Direct. I made a lump sum contribution and then sold the e-Series funds and bought VEQT / VSB for my one daughter’s portion and bought XEQT and XSB for my other daughter’s portion.
Cost me $40 in trading commissions, but that’s done now for the year.
Wealthsimple Trade does not have RESP accounts so you could not do this strategy there (yet, I’m told).
There are other options, such as Questrade, but the RESP is a complicated account and my last experience opening a complicated account (my corporate investing account) at Questrade was not a good one. It took 44 days and a lot of time back and forth. I wasn’t interested in a repeat experience.
Perhaps WS Trade will add RESPs in the near future and I can move the funds there in the coming year. They have recently added LIRAs, LIFs, and RRIFs – so it’s possible.
Oh, and do I care about fractional shares? I do not. There’s $4.26 sitting in cash in their RESP. No big deal.
Perfect, thank you for confirming!! I thought I read that WS was offering RESP accounts but I could be wrong. Sounds like sticking with TD will just be easier all around 🙂
Hi Robb,
It has now been over a year since published this and the preceding article on moving your RESP account. I am in the same process myself of moving from TD e-funds to a direct investment account. Any updates? How did it go? Are you still happy with the move? Might be worth a future post!?
Thanks,
Gord
Hi Gord, good idea – I’ll do an update later this year.
I’m happy with the RESP clean-up. One, I needed to de-risk this portfolio as it was mostly in equities and my oldest turned 15 this year. Two, I love a rules-based system to follow so Justin Bender’s proposed glide path is fantastic. And three, switching from monthly contributions to one lump sum deposit in January meant I didn’t have to think about this portfolio too much after that initial deposit.
To be honest, I’m waiting for Wealthsimple Trade to add RESP accounts to their self-directed platform. Once that happens I’ll move the TD RESP in-kind over to Wealthsimple and then I won’t stress over $10 trades when rebalancing.