RESP Account: Getting Started

We set up an RESP for our daughter just a few weeks after she was born.  Being new parents with little free time, we just opened the most straightforward RESP account that was available – an RESP GIC Account under a family plan.

This account was easy to open and set-up our monthly contributions.  The RESP GIC Account offered an interest rate of 1.95% and it was eligible to receive all of the government grants.

We wanted to get an RESP started right away, even though we could only afford small monthly contributions at the time.  Here’s why:

  • Tax-free growth – Your child is 18 years (or more) away from attending post-secondary school.  Even small contributions can add up quickly over time.  Contributing $50 a month for 18 years with an annual return of 4% will add up to over $15,000.
  • Canadian Education Savings Grant (CESG) – The government kicks-in $1 for every $5 that you contribute to your RESP (up to $500 per year) through a program called the Canadian Education Savings Grant.  That’s a guaranteed 20% return!  When you include the CESG with the example listed above, the total adds up to over $18,000.
  • Alberta Centennial Education Savings (ACES) – The Alberta government provides a one-time $500 grant when you open up an RESP, with no contribution required.  They also provide three subsequent payments of $100 when your child reaches the ages of 8, 11, and 14.  When you include the ACES grants with the example above, the total adds up to nearly $20,000.

It’s important to open up an RESP and get started early with whatever contributions you can afford.  However, I believe you should have your finances under control and start saving for your own retirement before worrying about maxing out your RESP contributions.

We put $50 a month into an RESP for about two years before recently bumping that up to $100 a month.

At the beginning of this year, I wanted to switch from the RESP GIC Account to the TD e-series funds.  TD e-series is widely known for low cost index funds, which are a great fit for a self-directed RESP account.

Unfortunately, transferring the funds from my existing RESP GIC Account to the self-directed TD e-series account would mean losing any grant money that I had received up to this point.

So I had to open a new RESP account through TD Waterhouse and direct my monthly contributions to this account.  With each monthly contribution, I put $100 into one of these four funds:

Canadian Equity TD Canadian Index – e (TDB900) 25% MER – 0.33%
US Equity TD US Index – e (TDB902) 25% MER – 0.35%
International Equity TD International Index – e (TDB911) 25% MER – 0.50%
Canadian Bonds TD Canadian Bond Index – e (TDB909) 25% MER – 0.51%

The CESG ($20/month) is automatically deposited into the cash portion of this account.  I will rebalance this portfolio when it strays from the original asset allocation – probably once a year.  I’ll change to a more conservative asset mix once we get closer to the withdrawal stage.

Contrary to popular belief, the TD e-series funds were not difficult to set-up and purchase.  Of course, it probably helps that I already deal with TD Bank and use TD Waterhouse for my RRSP and TFSA accounts.

If I could do it all over again I would set up our RESP with TD e-series right from the start.  It’s an extra few steps, but it’s worth the effort.  Instead, I have $2,500 sitting in a separate RESP GIC Account that I have to keep tabs on every few years to roll into a new GIC.

If you’re looking for more information on how RESP accounts work and how to get one started, check out The RESP Book by Mike Holman.  This book is very useful for parents, no matter what stage they are at with RESPs.


19 Responses to RESP Account: Getting Started

  1. Nice writeup, Robb.

    You are allowed to transfer any RESP grants, however if the new institution doesn’t offer the additional grants, they will be lost.

    In your case, if you move the RBC GIC account to TD, all the regular (20%) grants will get transferred and won’t be lost.

    My suggestion for someone who is eligible for additional grants/CLB is to make the first $500 of contributions/year into a GIC accounts and get the additional grants. Then any remaining contributions can go into a TD e-series account or discount brokerage or whatever.

    • @Mike – thanks for stopping by. TD told me that if I transferred everything from the GIC account to the e-series funds, I would lose any grant money previously earned (including ACES). I’m assuming this is because I’m basically collapsing the GIC account.

      Not sure where you got RBC from, but this is a TD-to-TD transfer.

  2. Great timing! We have an appointment to set up my son’s RESP next week and I’ve been intending to do some extra research on them prior to that. While I do know a bit about RESP’s, I feel like I’m not sure of what I don’t know… My financial advisor will be making some suggestions and I want to make sure I understand what she’s talking about. Maybe I will check out the book you suggested.

  3. Robb,
    Please don’t take my comments as too critical, believe me I mean them in the best spirit of being constructive for you Blogs like this one that you are writing can be useful and motivational. But if folks are to rely on the information provided, it must absolutely correct. Or should alert the reader of their need to not rely solely on the info you provide.

    Except in the most unique circumstance there is no restriction on transferring ALL the funds from one RESP to another institution’s RESP, including the 20% government grant. Under the seemingly normal situation you’ve described I think you have been misled and thus are providing your readers incorrect info.

    Also, while I’m commenting, I seem to recal a blog entry last week in which you stated that funds raised from your line of credit And used to invest in common stocks allows the interest to be written-off for income tax purposes. I believe that interest can only be written- off if the funds are invested in dividend-paying stocks.

    I hasten to add that I’m not an investment professional but the above is my experience.

    All the best in you ongoing blog endeavor.

    • @Mike Marquis – thanks for your comment. I do strive to provide the most accurate information for readers of this site. I definitely appreciate the feedback if/when I do make a mistake.

      In this case (the RESP transfer) I was told on three separate occasions by three different TD reps that I would lose the grant money if I transferred the funds from this account.

      I sent a message to TD’s Twitter feed asking someone from the bank to weigh-in on this issue, so hopefully they can respond in this thread and provide some clarity.

      • Hi this is Dan from the TD Social Media Team. I’ve had the chance to speak with the TD side and the TD Waterhouse side and can confirm that if there is the Canada Learning Bond in a Term Account with TD, it cannot be moved to TD Waterhouse as it would get clawed back. If you would like to connect with our specialists about solutions/options, please contact our mutual fund reps at td.mutualfunds@td.com or reach us on Twitter under our handle @td_canada ^DJ

  4. @Mike Marquis

    You are incorrect re: interest write-offs for investment loans. The investment does not have to be strictly for dividend paying stocks. The investment can include anything in which you anticipate to earn interest, dividends, rents, etc. Here is the link to the CRA notice describing carrying charges and interest expenses.

    CRA Carrying charges

    cheers

    Michael

  5. That is great that you have set that up for your kids. My Dad did something similar and it really helped me out.

  6. Hi, I have a question. My mother wants to make contributions to an RESP for my son/her grandson. She thought about setting up an RESP account, but my wife and I already have one set up for him. Since we’re not sure we can make the full $2500 contribution every year to get the max grant money, would it make more sense for us to suggest Grandma contributes to our account instead of her own? Are there any benefits or disadvantages to having one central account for everyone to contribute to as opposed to everyone having separate accounts? I’m sure this is right, but correct me if I’m wrong: the grant is a max of $400 per child regardless of how many accounts are set up in the child’s name. So to me it would seem logical to only have one account.

    • @Jake – you are correct. Just like with a TFSA, it doesn’t matter how many accounts you have, the contribution rules still apply. So for simplicity sake, it makes sense for your mother to just contribute to the account you’ve already set up for your son.

    • Actually the max C.E.S.G. is $500 ($2500 x 20%) unless you have carry forward contribution room from previous years. Then the amount could be a max of $5000 x 20% = $1000

  7. TD Waterhouse more restrictive than CRA in redeeming EAPs

    Be careful- while the goverment legislation and FAQs state
    ” an education savings plan may allow for the payment of an educational assistance payment to or for an individual at any time in the six-month period immediately following the particular time at which the individual ceases to be enrolled as a student in a qualifying educational program or a specified educational program, as the case may be, if the payment would have complied with the requirements of paragraph (2)(g.1) had the payment been made immediately before the particular time.” the key is the word MAY. I am advised that TD policy is that a graduation certificate or a current proof of enrollement is required by them.

  8. Beware of TD Canada Trust RESP

    Unless you want your RESP, and Government Grants to be invested in a Term GIC, beware of TD Canada Trust’s RESP!

    If you want your RESP invested in mutual funds, if you want to receive Government Grants that are available (beyond the CESG), and, do not want a RESP account plus a Term GIC account (yes, two accounts!), look at either Royal Bank of Canada, Scotia Bank, CIBC or Bank of Montreal and not TD Canada Trust!

    TD Canada Trust’s policy dictates that if you wish to receive Government Grants such as the CESG, the Canadian Learning Bond, Quebec Education Savings Incentive, or the Alberta Centennial Education Savings Grant, they will only process the applications if the funds from these Grants are placed into a Term GIC.

    And, these funds cannot ever be rolled into your mutual fund RESP or transferred.

    You have no choice in this!

    With TD Canada Trust, if you wish your TD Canada Trust RESP be invested in Mutual Funds, and, you also wish to receive Government Grants beyond the CESG, you must have two RESP accounts (imagine the headaches for you the subscriber, and also the problems when the beneficiary begins his or her post-secondary education) with this.

    You have no choice with TD Canada Trust.

    Royal Bank of Canada, Scotia Bank, CIBC or Bank of Montreal do not have such a restrictive policy.

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