RESP vs TFSA: how to choose between them
Author: Sound Choices
November 15, 2018
Education Savings:
Which registered plan should you use? Let’s look first at ownership, beneficiary options, government grants and contribution limits.
The content in the below article is meant for Canadian investors only.
Both a Registered Education Savings Plan (RESP) and a Tax-Free Savings Account (TFSA) are tax-sheltered plans – but there are important differences to consider before deciding where to put your education savings. What are the key differences and what does this mean for you?
Ownership
| TFSAs | RESPs |
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Consider:
- The RESP subscriber and the TFSA holder own and control the respective accounts.
Beneficiaries
| TFSAs | RESPs |
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Consider:
- For an individual RESP, the beneficiary can be any age, whereas for a family RESP, the beneficiary must be under age 21 to be added
- The money in a Family RESP – including the federal and, if applicable, provincial grant money as well as the income earned – can be shared among the beneficiaries up to the beneficiary’s personal maximum. Note: the Canada Learning Bond cannot be shared.
- For a TFSA: Choosing a successor holder or beneficiary is optional. If you don’t designate either, the value of your TFSA will go to your estate or automatically to your spouse, depending on where you live. If you designate both a successor holder and a beneficiary, the successor holder takes precedence.
- For an RESP: The beneficiary doesn’t automatically inherit the RESP if the subscriber dies.
Government grants
| TFSAs | RESPs |
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Yes:
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Consider:
- On the first $2,500 you contribute to an RESP, you get an automatic 20% boost – with the CESG-matching amount. Find out if you qualify for additional CESG.
- The CLB cannot be shared among the beneficiaries in a Family RESP
Contribution limits
| TFSAs | RESPs |
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Consider:
- Any withdrawals from a TFSA are added back to the unused contribution room – but not until the next calendar year
- With an RESP, withdrawn contributions are not added back to your contribution room and cannot be re-contributed
- If a beneficiary has multiple RESPs, the subscribers need to co-ordinate their efforts to ensure they don’t combine to go over the lifetime limit
- Once the RESP lifetime contribution limit has been reached, no more contributions can be made in that beneficiary’s name – even if you’ve made withdrawals
So what should you do?
Read the second part of this article – “RESP vs TFSA: what else should you consider?” – which covers taxation, carry-forward room, withdrawals and age restrictions.
You have to do what makes sense for your situation.
A financial advisor can help you figure out the best way for you to save for your child’s post-secondary education. Talk to a financial advisor to learn how they can help you and visit AGF.com/RESP.
Every effort has been made to ensure accuracy at the time of publication, however accuracy cannot be guaranteed and AGF takes no responsibility for reliance on the information contained herein. The contents of this Web site are provided for informational and educational purposes, and are not intended to provide specific individual advice including, without limitation, investment, financial, legal, accounting or tax. Please consult with your own professional advisor on your particular circumstances.
About AGF Management Limited
Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.
For further information, please visit AGF.com.
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