RESP Goals! (mid-year update)

Group RESPs are receiving extensive news coverage again for all the wrong reasons.

We considered group RESPs when Devon was born and were baffled people were even allowed to sell these things — they’re terrible. For Group RESPs to work, they ‘need’ to have:

  • Extremely high fees: the first few years of contributions go mostly to fees
  • Mandatory contributions: risk of losing the entire contribution if parent hit hardships and can’t contribute for a period of time
  • Restrictions on program selection and course load when the kid goes to school: risk of not receiving funding
  • Obscure structure and regulation
  • Crummy underlying investments

Best feature of these plans: when you lose your contributions, you also lose the government grants and interest that have been distributed along the way — it’s twice the deal! There is so much risk built into these ‘saving’ vehicles, and so many ways to run afoul of the rules, that is surprising half a million Canadians signed up for this.

We opted for a self-directed plan for Devon where we manage the money ourselves in a brokerage account. It was more work to set up but it’s worth it: half way through 2018 Devon’s RESP returned a reasonable 3.75% in a mostly flat market. Since we started the plan five years ago, we received slightly more through market returns than we got through the 20% government grant.

The returns have been pleasing and consistent, and unlike a group RESP, we don’t run the risk of losing either our contributions or grant funds.

This year, for instance, we had our kitchen appliances break down, our dog needed surgery, and we had major car repairs. With a self-directed plan we have the flexibility of pausing contributions for as long as needed and catching up in future years without some made up penalties. Some of the folks in the Group RESP article have hit a much rougher patch, and it’s extremely unfair to punish them twice.

While we’re not super fans of banks, a straight-forward bank RESP is a much safer option if the DYI option is too unappealing. As for Group RESPs, as the article mentions, “perhaps the time has come to phase them out.”

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