Comments on: TFSA versus RESP

By: Eva

Eva — Wed, 23 Feb 2011 20:28:49 +0000

Is it worth it for low income family to contribute to RESP? As I know, in Ontario, if you apply for an Ontario Student Loan, and if your child cashed any RESP during the school year, the funding of her student loan will be reduced.

At the moment, if the student’s income is low, which most likely is the case, any OSAP amount of loan she borrowed in a shool year that is over $7000, will be forgiven (she would be qualified for the Ontario student opportunity grant). That being said, if she borrowed $12,000, she only have to pay back $7000, and received $5000 OSOG to reduced the amount she owed.

If the student cashed in $5000 of RESP in a school year, her OSAP funding will be deduced by $3361 (approximately), meaning she would receive $3361 less from the Ontario student opportunity grant offer by OSAP. The student could have received $5000 OSOG if she did not have the RESP.

In my view, RESP is not really beneficial to low income families, because the OSAP funding will be affected by it, and it also reduced and jeopardizing the chance of receivng the OSOG.

Can some one tell me if I am correct? If not, please explain to me why? Thank you so much.

By: Simoncanteach

Simoncanteach — Wed, 10 Nov 2010 00:46:51 +0000

I’ve been looking around for a definitive answer to this question:

We are getting the maximum CESG every year — Nice! But we heard from our friends that getting CESG would disqualify for student loan.

Could somebody please comment to this?

Thanks a lot!

By: DealFinder

DealFinder — Thu, 19 Feb 2009 22:16:54 +0000

One thing is worth noting, if you planning to play it REALLY SAFE and keep your child’s education money in GICs only (not investing into market), the choice of GICs that could be placed in RESP is rather limited and the interest rate is usually significantly lower. It seems that none of the high interest GICs like Achieva, ING Direct and such are eligible for RESP, only for TFSA.

Here’s an example situation: ING’s 5-year GIC is 4%, while all the big RESP eligible banks offer only 2.2% that’s 1.8% difference. Doesn’t seem like that much, but that little 1.8% beats fully maxed out CESG in just 17 years. O_O

So it seems that RESP isn’t always better than TFSA, even with fully maxed out CESG. The assumption was made that the growth rate for both TFSA and RESP will be the same, while in reality GIC RESP interest is at least 1.5% lower – enough to completely erase any advantage CESG provides.

By: RESP vs. TFSA: Which is the best way to save for your child’s education? « Parenting in Vancouver

Wed, 31 Dec 2008 07:07:27 +0000

[...] one wrinkle to all this, however: the education grant. The Canadian Capitalist blog has crunched the numbers and concluded that — assuming you’re confident your kid actually will go to [...]

By: Ideas for your Tax-Free Savings Account (TFSA)

Ideas for your Tax-Free Savings Account (TFSA) — Mon, 17 Nov 2008 02:30:37 +0000

[...] for your child’s education: The RESP is still the best place to save for a child’s education because any contribution attracts the Canada Education Savings Grants (CESG) resulting in an [...]

By: Canadian Capitalist

Canadian Capitalist — Wed, 26 Mar 2008 17:23:03 +0000

Traciatim: I concur and that’s what I plan to do personally. Contribute enough to get the maximum match for a RESP and any thing over and above that goes into the TFSA. As an added bonus, the TFSA account offers flexibility rather than tied to a specific purpose.

By: Traciatim

Traciatim — Wed, 26 Mar 2008 15:09:45 +0000

CC, having said that, it still would be a good idea to consider using, not to replace but to supplement the RESP. Contribute the max to the RESP to get any CESG the government is offering and then put the rest in to the TFSA to ensure the minimum amount is taxed for the child when in school to allow the deductions to make taxes owed 0.00, and then transfer the rest to the parent.

Though not quite as nice as Daniel had thought, it still is a decent strategy, and worth thinking about if you are making enough contributions to an RESP to put in more than the CESG match tops up.

By: Canadian Capitalist

Canadian Capitalist — Wed, 26 Mar 2008 14:42:49 +0000

Daniel: The education expenses (tuition, education amount and textbook credit) are not tax deductible. You just get a tax credit which would result in a 15% reduction in taxes payable and hence is worth the same whether it is taxed in the parent’s hands or the child’s. The 20% grant provided to a RESP just makes it better than the TFSA for saving for a child’s education.

By: Daniel Goertzen

Daniel Goertzen — Wed, 26 Mar 2008 13:46:20 +0000

One advantage of the TFSA approach is that you can get tuition deduction carryover to the parent. Consider this [extreme] scenario:

- Save for education in a TFSA
- Child has no income.
- For example’s sake, say all eduction expenses are deductable (tuition, books)
- Since child has no deduction room, parent can get the whole deduction at MTR (say 40%).

If I got all that straight (perhaps I didn’t) then TFSA could be better than RESP. Of course that situation is extreme, and the child will probably have some sort of income, and not all of the child’s expenditures will be deductable.

Thoughts?

By: Political Football with RESPs

Political Football with RESPs — Thu, 13 Mar 2008 10:41:41 +0000

[...] In most instances, a RESP beats out other alternatives – it is better than a RRSP, it will be better than the TFSA and it is certainly better than saving in a taxable account. Bill C-253 introduced by MP Dan [...]