Congratulations on the birth of your granddaughter.
Mad Mike is a Grampa.
- Thread starter Mad Mike
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Maybe. You are taking on a ton of risk though. At the back end, if there is extra money, government taxes as income at your marginal tax rate plus 20% (if you were in the top bracket, 33% fed+13% pro+20% penalty =66% tax on RESP growth withdrawal. Ouch). That is justified by assuming that CESG made up 20% of the contributions. If CESG made up less than 20%, that is a punitive tax rate but you can't get around it. There are a few other paths like transferring up to 50K to RRSP but they all have some issues of their own.
"There is little to no incremental investment risk here for me. I know what my historical rate of return is and I have an 18 year period to weather ups and downs in the market. If I've committed to supporting my grandkids education then why would i want to pay income tax now on my investment income or capital gains if I can move these funds to an account where they earn income and that income tax is paid by someone else years from now.
Sorry, you need to rethink your calculations, as they are not valid. You referencing my tax rate, but I'm not going to be paying the tax on the RESP withdrawals.
The contributions are tax free to the student when they are paid out.
All income tax will be paid by the student on the CESG and the investment gain. The student's tax rate will very low, if not zero. You can specify how the RESP is paid out to optimize (i.e. minimise income tax payable) by the student.
That assumes that the child is in a program where they are able to extract all the money. Money not used for education gets assigned and taxed to the subscriber not the beneficiary. I don't see a way for it to be taxable to the kid other than if it is used for education (and related expenses).
Registered Education Savings Plans (RESPs) - Canada.ca
This page provides information for individuals on registered education savings plans (RESPs).
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Fwiw, I've run a bunch of different scenarios using my historical ROR and adjusting yearly once last years ROR is known. Putting in 2500/year until they are 15 (max government contribution) should give them 50-60K/year for four years. Without proper documentation and support, that is risking a CRA beatdown for excessive withdrawals. EAP withdrawals of more than 28K a year gets a magnifying glass. Even if your path resulted in more money at the end, it can be hard to withdraw it tax efficiently. Do they become perpetual students? Take flight school to use up the money? You pay 66% tax on the extra? If someone was highly risk averse and GIC'd the RESP, none of that matters as the kid will quickly use up the fund with any education. What if the kid doesn't do post-secondary education at all? That pool of money is now your to try to get out with minimal loss.
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I am putting money aside but I will try to guide them away from university or college. It's not the path to success it once was and there are far better paths imo (i have a degree and my wife has three). If they do something like a trade, RESP can be used for that. University and college take a bunch of years of negative money and it most cases don't pay that well after anymore. Trades start with positive money from day one and if they're good, it will be rare they will have a year where they make less than an edumacated person. That years long gap at the beginning is enough to rocket the workers ahead of the learners.
I am also wondering what the best path for the kids will be they have a good amount in resp now approx but what path to success will be best.
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Plenty of people use the RESP as a low tax gain in their kids' name.
Sure you need to pay back the grant and whatever else, but still nice growth with time if the kids choose not to go that path.
Then you withdraw in the kids' name with lower income, and keep the remainder.
Read the rules carefully. I don't see a path to withdraw as the kid without being enrolled in school. I know some people have enrolled kids to be able to extract the money that way. Losing the tuition was less than the tax.
Mad Mike
Well-known member
PW50 2 stroke.
Mad Mike
Well-known member
Audrey.
Mad Mike
Well-known member
Thanks for all the well wishes.Congrats MM
Grampa has been getting to know baby Audrey for a week now.
Baby’s are fun for grandmas right now, I can’t wait till she can twist a throttle. I’m on the hunt for a PW50 project - no panic as she won’t be riding until she’s at least 2.
