Family Accounts vs Individual, Contribution Amounts, Best Bank – RESP Reader Questions

by Mike Holman

Anne writes:

Looking for advice… We have three children ages 7, 5 and 3. We have a family account RESP setup through Nesbitt Burns but need to switch advisors. We have no other affiliation with Nesbitt Burns and therefore are looking into transferring our account to one of the major banks. I have 3 questions:

  1. Should we be doing a family account as opposed to 3 individual accounts, given the age ranges of our children?
  2. What are recommended monthly contribution amounts? and
  3. Any recommendations in terms of which bank to approach? We have ruled out BMO.

By the way, great website – thanks!

Ok, let’s look at each question:

Family RESP vs individual RESP

It sounds like Anne is thinking that because the ages of the kids are relatively close, a family plan would make more sense.  One misconception about family plan RESPs is that they are the only way to share funds between siblings.  Not true, as sharing can also be done between individual accounts as well.

There are pros and cons to be considered – a family plan might be cheaper if you are paying annual account fees and there will be less paperwork in the mail such as confirms and statements.  On the other hand, I think individual accounts make it much easier to track the amounts that each child has and don’t have the problem of potentially losing RESP grants if you pay out too much money to one child.  See point #6 of the article 8 things you need to know about withdrawing from an RESP account for an example as well as this article – How to distribute contributions and EAPs in a family RESP account.

I have a family plan for my two kids and although I have considered switching it to two individual accounts, so far I’ve stayed with the status quo.  I like the convenience of writing one cheque whenever I make a contribution.  I also like having less accounts.

The RESP rules between siblings are the same whether they are in a family account or individual accounts, so I think Anne has to consider the different pros and cons and see which setup is more convenient for her.

Related:  Family RESP account vs individual RESP accounts

Recommended monthly contribution amounts for RESP

To figure out the proper monthly contribution amounts, you have to determine what your goals for the RESP are.  Is it to contribute to get the maximum RESP grant?  To pay a certain percentage of the post-secondary education?

It’s very difficult to know in advance how much post-secondary education will cost.  How many years will the student go to school?  Will they live at home or away from home?  Will they be in an expensive city?

It’s a lot easier to figure out how much to contribute to get the maximum grant, so let’s do that and then Anne can try to contribute that amount or if she can’t quite reach that goal – at least she’ll have something to shoot for.

The maximum amount of RESP grant that one child can receive in their lifetime is $7,200.  If the parent is higher income (I’m going to assume Anne is) and doesn’t qualify for any low income RESP grants, then it will require $36,000 of contributions to reach the maximum of $7,200.  These contributions have to be made by the end of the year that the student turns 17.

If a child is born in January and you manage to get an account set up in that same month (good luck with that), then there will be 18 years where contributions can be made or 216 months.  $36,000 divided by 216 is $166.66.  So if you start early enough, it will take $166.66 of contributions per month to get the maximum grant amount.

For someone like Anne who has older kids and accounts already set up – she will have to determine how much grants have been paid to each child* and then take $7,200 minus grant paid and divide by 0.2 to get the remaining contributions.  Divide that amount by the number of remaining months before the end of the year when the child turns 17 and you have your monthly contribution amount.

*To find out how much grants have been paid – contact your financial advisor or call the HRSDC at 1 888 276 3624.

Related:  Why a university education might not cost as much as you think

Best bank for RESP account

I don’t have an opinion on which bank offers the best RESP.  The banks are all pretty much the same in my view, so take your pick.  My article – How to set up the safest, cheapest and easiest RESP account, covers GIC RESP accounts and also takes a look at an RBC mutual fund which is geared towards educational savings.  If you want to work with an advisor, then try to spend some time finding someone you can work with.

Related:  How to run a background check on your Canadian financial advisor

Related: Different types of Canadian financial advisors – which is right for you?

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