RESP vs TFSA: how to choose between them
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Insights and Market Perspectives

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
  • Single ownership
  • Single & joint ownership options are available (note: joint ownership is available to spouses or common-law partners only)
  • Subscriber contributes in the name of a designated beneficiary and retains control over the account
  • The federal government will provide the Canada Education Savings Grant (CESG) of 20% of the contributions, up to $500 per year, per beneficiary. The government can take back the grants if the contributions are withdrawn while the beneficiary is not enrolled in post-secondary studies

Consider:

  • The RESP subscriber and the TFSA holder own and control the respective accounts.

Beneficiaries

TFSAs RESPs
  • A beneficiary or a successor annuitant can be named for estate-planning purposes (optional)
  • With an individual RESP, there’s one active beneficiary. There is no relationship requirement so anyone can be named as the beneficiary – even the subscriber
  • With a Family RESP, a subscriber can name one or more beneficiaries, provided they are all related to the subscriber by blood or adoption
  • Beneficiary doesn’t own any part of the RESP

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
  • None
Yes:

  • Canada Education Savings Grant (CESG)
  • Canada Learning Bond (CLB)
  • British Columbia Training and Education Savings Grant (BCTESG)
  • Quebec Education Savings Incentive (QESI)

Consider:


Contribution limits

TFSAs RESPs
  • Annual – $5,500 for 2018
    (plus unused contribution room)
  • No annual limit
  • Lifetime contribution limit: $50,000
    (for each beneficiary – not for the contributor)
  • CESG limit: $7,200
    (for each beneficiary)
  • CLB limit: $2,000
    (for each beneficiary)
  • QESI limit: $3,600
    (for each beneficiary)
  • BCTESG limit: $1,200
    (One-time grant)
  • Can make contributions for 31 years (and must close the RESP after 35 years)

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.

© 2018 AGF Management Limited. All rights reserved.

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