Family RESP vs individual RESP. Which is better?
Should I set up a Family RESP plan or an Individual RESP? This question has been posed to me several times over the past years. If you only have one child then the answer is easy . . . set up an individual plan. However, if you plan to have more than one child then the question becomes an important one to follow up on.
Related article: Different types of RESPs
A Family RESP plan can have more than one beneficiary. The beneficiaries of this type of plan have to be connected to the subscriber of the plan by either blood or adoption. It can be children or grandchildren. If more than one beneficiary is appointed then you can allocate the contributions to each beneficiary. For example, if there is a significance difference in age then you may want to appoint a majority of the contributions to the older beneficiary since the younger has time to grow the funds.
These plans can only have one beneficiary. The beneficiary on this account can be replaced but if the new beneficiary is not blood or adopted then the grant money has to be repaid. As mentioned earlier, if you only have one child this is the only plan you need.
As the subscriber makes contributions Government grants will be paid to the RESP (if applicable). The grants that may be paid into the RESP are the Canada Learning Bond, the Canada Education Savings Grant and if any provincial grant programs that may be available. The Canada Education Savings Grant (CESG) is the grant that most people will be familiar with. The maximum CESG grant one can accumulate is 7200 per beneficiary.
Related article: RESP Contribution rules
So which is better? Family RESP or individual RESP?
If you have more than one child the Family plan may, at first glance, look like the best option. Family plans look more flexible for the contributor but in reality there really isn’t a big difference. The Family plan and the Individual plan can do pretty much the same thing. Again, if you are only having one child as mentioned earlier the Individual plan is the only option. If you have 3 children and you have set up a Family plan or 3 individual plans and one of your children decide not to go to school it doesn’t matter what plan you are in because you can transfer money to the kids that are going to school. You can do that in either plan. By choosing a Family plan over two or more individual plans you may save on fees.
The bottom line is ask your Advisor the pros and cons regarding both the Family plan and the Individual plan. If you plan on having more than one child, you can set up a Family plan when your first child is born. Ask the questions and set up the plan that best suits you and enjoy the grant money coming into your plan.
For those parents who have extra cash lying around and are in a high tax bracket the best option is to create individual plans and place the entire 50K in the plan as soon as the child is born. The avoided tax on investment income would exceed the government grant and allow you to shelter the money for up to 35 years.
I wish someone had made me aware of this so am passing the wisdom along.
I think getting the government grant is a better solution. So put in everything except the for amount the government will match 20% for. (Aka invest $14k right away, and then invest another $2,500 per year until you hit the $50k total investment)
Which is the better solution depends on what assumptions you make.
If your annual return is higher than about 4%, you will end up with more at the end putting all 50K in right away, even forgoing the grant.
Hey Jim, can the family plan then roll from kids to Grandkids? Because I know grandparents can contribute but say my children don’t go to school can I transfer it to there children? Thanks.
I would say likely not… there is a limit to the plans of 35 years. The likelyhood of that working for grandkids is unlikely.
Great read. It’s true that choosing between an individual RESP and a family RESP depends on your needs. However, there are better alternatives for RESP that you can choose from. One example is Child Plan TM, which participates in whole life insurance. Unlike the RESP, the cash values of the Child Plan can be used for any education or any expenses. You also have control of the cash value even after giving it to your child. Plus, it’s completely tax-free once you transfer it. You can find more information here.
What are your thoughts on the negatives of withdrawing from a family plan? Isn’t it possible that the first kid to use it may take more than their share and it’s difficult to track who should get what when the individual plan make that straight forward? With rising education costs that seems more likely and having a kids not attend school seems like a low risk given that they can use it until their 35. That’s a long time opportunity to use it for tech school, trade school, under-grad, post-grad, and MBA.