Tuesday, October 19, 2010

Book Giveaway: The RESP Book

Who knew that RESPs had so many rules! Mike Holman clearly explains all the ins and outs of RESPs in his book The RESP Book: The Complete Guide to Registered Education Savings Plans for Canadians. The book is only 118 pages long – the author tends to get to the point quickly.

Holman has graciously offered an extra copy of the book as a giveaway for my readers. To enter, just send an email to the contact email address in the upper right corner of my blog with the subject “Book”. Readers who subscribe to my feed will have to click through to my web site. Another benefit of going to my site when reading a post is to see the comments other readers leave on that post. All entries received before noon on Saturday, October 23 will be considered for the draw. I reserve the right to eliminate entries that I judge to be outside the spirit of the contest.

Holman covers the full range of RESP topics: contributions, grants, withdrawals, opening an account, and basic investing information. The author isn’t just a promoter, though; he also lists reasons why some people shouldn’t open RESPs.

One part of the book that struck me as amusing was the subsection titled “RESPs for adults are a waste of time.” What do you really think, Mike? This is as strong an opinion as the author expresses, though. Holman has opinions about which approaches are better than others, but they are expressed in a fair and balanced way.

Here are a couple of questions that came to mind while reading this book:

1. If two or more people open RESPs for the same child and they collectively go over the $50,000 lifetime contribution limit, which RESP gets hit with the 1% per month tax penalty?

2. RESP contents are divided into contributions and accumulated income. Accumulated income consists of government grant money and investment gains. When I start withdrawing RESP money for a child in university, my preference is to withdraw grant money first, then investment gains, and lastly contributions. The reason for this order is in case the child quits school, the grant money must be returned to the government and the investment gains will be taxed. When withdrawing accumulated income, can I request that it be entirely grant money at first, or is this restricted in some way?

In conclusion, I recommend this book to anyone planning to open an RESP. It is likely to be useful to those who already have RESPs as well.


  1. I'm seriously considering getting a copy of this book. It's well-timed. With all the seemingly arbitrary rules, I'd pretty much decided not to bother with RESPs; maybe this book will change my mind.

  2. Hi Michael - thanks so much for doing this review and giveaway.

    To answer your questions:

    1) Once the $50k limit is reached, then any further contributions are considered to be overcontributions and will be taxed to the person making the overcontribution.

    2) No, you can't. You can specify that the withdrawal be contributions or non-contributions (EAP), but the grants are included as a ratio of the EAP and you can't change the ratio.

    @Patrick - There are valid reasons for not wanting an RESP, but the rules shouldn't be one of them.

  3. @Mike: Thanks for the answers. For #1, I guess it amounts to a race. If the two contributions in different accounts are made at about the same time, the one that gets reported to the government later is the loser.

    In your response to Patrick, perhaps you meant that lack of familiarity with the rules initially shouldn't be a barrier to opening an RESP (once you've learnt the rules). If the rules themselves aren't favourable for a particular person, then that may be a good reason to avoid an RESP.

  4. @Michael - Yes, it's pretty much a race. :)

    Thanks for clarifying my answer to Patrick. A lot of the issues I've seen people have with RESPs stem from lack of knowledge of the rules.


  5. I think the RULES the government have put in place are OK, it's the extra rules some banks throw in that really have a painful after effect.

    If you think your children might go to Post Secondary education, an RESP is a good idea, but it might be interesting to see a comparison about putting money in RESP, or paying down Mortgage and how that all lines up too!

  6. @Big Cajun Man: You make a good point about being aware of extra rules imposed by financial institutions. It was these rules that kept me from opening an RESP for my kids many years ago.

  7. @Mike: Sorry to reply two years late, but there is definitely a point of diminishing returns when it comes to coping with complex rules. RESPs have a limited upside ($500 per year), so it makes sense to look at the downsides, which come in two forms:

    1. The complexity of the rules might lead to me making some sort of error that makes the CESG benefit evaporate and leaves me with a painful tax bill.

    2. The $500 per year is simply not enough to compensate me for the time I'd spend on learning the rules, and the anxiety induced by worrying that if I fail to keep abreast of changes to the rules, I may end up in situation #1.

    I happen to have a particular aversion to complexity, so perhaps #2 only applies to me.

    There's also what I'd call the "annuity effect": the RESP takes away your freedom to spend your money the way you want. If you wind up doing exactly what the plan wants you to do (fund someone's education for the RESP, or spend money at an even rate for an annuity) then no harm is done, but it's not clear to me that this is a wager I'd like to make.