Comments on: RESP – Asset Allocations

By: Dan

Dan — Mon, 30 Jan 2012 02:07:21 +0000

We’re about to start a Family RESP with Questrade, mainly because it allows us to buy gold, but also for the reason of keeping our investments self-directed. Anyone aware of any restrictions or limitations the government might have when contributing the CESG to commodity-holding accounts? A financial advisor from RBC recently told us (non-specifically) the government won’t contribute the grant to certain types of RESP accounts and I’m wondering if this was they type he meant.

By: Four Pillars

Four Pillars — Fri, 19 Dec 2008 14:23:02 +0000

RespedOut – yes, on the “earnings” portion (which doesn’t include grants since they get taken away) you pay your marginal rate + 20% which in your case would be 60%.

As Jordan mentioned – if you can roll it into your rrsp (or your spouse’s rrsp) then you will avoid the 20% special tax. You won’t pay any tax on it until it is withdrawn – at that point it is just normal income.

Now that I think about it – I wonder if there are rules about how long the money has to stay in the rrsp to avoid the 20% tax? ie if you make a spousal rrsp contribution and then withdraw the money within 3? years then it gets taxed at your marginal rate – not the spouse. I’m just thinking that if there isn’t any similar rule for RESP to RRSP transfers then you could do the transfer to the rrsp and then withdraw from the RRSP. You would still pay the normal income tax but you would avoid the 20% hit.

I’ll have to look into this.

By: Jordan

Jordan — Fri, 19 Dec 2008 06:06:36 +0000

The point of an RESP is when you take money out for education expenses it is taxed in the hands of the student, not the parent. So in most cases you would pay no taxes at all. I think the 20% tax Four Pillars is referring to is if you collapse the plan without ever using it, but even if you do collapse it unused I think the tax can be avoided if you just roll the RESP contributions over into an RRSP, assuming you have unused room left.

By: respeedout

respeedout — Fri, 19 Dec 2008 03:16:02 +0000

Is this 20% tax that you pay when it is collapsed in ADDITION to the rate that you are taxed at your income level? Like if we are at the 40% income tax rate, would those earnings be taxed at 60%? Is this because it is considered a capital gain? soooo confusing…. And does this 20% apply if you have rolled it into an rrsp for yourself? (you are able to do that aren’t you?)

By: Four Pillars

Four Pillars — Sat, 13 Dec 2008 00:45:25 +0000

Brenda, I don`t know why you would pay any tax in your situation. All grants and earnings are taxed in your son`s name. The 20% tax only applies if you are collapsing the resp and he doesn`t go to school.

There is a limit of $5k withdrawal of earnings and grants in the first 13 weeks but you can remove any contributions you like.

Hope that helps

By: Brenda

Brenda — Sat, 13 Dec 2008 00:26:50 +0000

My son started university in Sept. We withdrew $5000. $2600 in grant and $2400 in growth. I want to withdraw more as his next tuition is due, but do not want to have to pay tax on it. He can claim tuition, textbooks($65 x 4months), education ($400 x 4months). Need help figuring out how much more I can withdraw. Is it better to withdraw all the grant he had $5800 total in grant money . Is the grant money taxed at 20%? I would appreciate any help as everyone I talk to gives a different answer.

By: Jordan

Jordan — Thu, 04 Dec 2008 13:25:23 +0000

I know its an old post but I found it very helpful. I’m working on creating a RESP autopilot spreadsheet which shows our kids will be fully funded in just 5 more years, but I forgot to adjust the yearly returns at the end to melt down the equities into bonds. Also I’m starting with the mini sleepy portfolio’s 80/20 equity/bond split, which will melt down to 10/90.

By: How Would I Invest if I Were Just Starting Out? — benway.net

How Would I Invest if I Were Just Starting Out? — benway.net — Sun, 16 Dec 2007 04:56:08 +0000

[...] Step 4: Determine your risk profile and asset allocation. Your risk profile and the subsequent asset allocation you choose are the most important decisions that you will make in your investment journey. I talk more about that in this post – Creating an Investment Plan. I came across a pretty cool asset allocation tool at the Smart Money website. Play around with that one until you find an asset allocation that meets your needs. Remember, in step 3 I suggested reading as much as you can get a hold of – look for books on asset allocation as well. One I recommend is The Intelligent Asset Allocator. Other blogs to check out that have covered asset allocation are here and here. [...]

By: RESP - Withdrawals

RESP - Withdrawals — Sun, 18 Nov 2007 03:16:53 +0000

[...] See the next post on Asset Allocations [...]

By: FourPillars

FourPillars — Mon, 12 Nov 2007 12:12:21 +0000

Good ideas CI.

Mike