My Opinion on RESPs: Opinions (Part 5)
Registered Education Savings Plans (RESPs) are…great… maybe… if everything goes according to plan. That is, if parents believe that college is the ultimate educational goal for everyone (and it isn’t) and can predict with certainly what a child will ultimately do in life (which is highly unlikely), RESPs could be a good thing.
Indeed, good accountants will advise their clients to look into RESPs, but usually as a last resort to tax saving strategies that include better instruments such as Tax Free Savings Accounts (TFSAs) and Registered Retirement Savings Plans (RRSPs) designed to reduce tax liabilities.
However, in my opinion, the best way to reduce this tax liability is to have lots of children! This is a simple strategy since having more children, besides bringing in more blessings, usually results in less taxable income!
But if you still find yourselves in need of strategies for tax planning purposes, TFSAs are your best option, then RRSPs. Both of these involve the parents’ resources without mixing the children into the formula.
RESPs, on the other hand, may help parents reduce their tax burden, but these instruments involve more than just the parents’ financial resources. They involve the children, which may not be a good thing.
If parents could clearly predict that their little children will be going to college, RESPs could be a good instrument, as not only do the parents reduce their tax burden, but should the children actually go to college, the government also contributes towards the cost of the education through this instrument, which I am sure you will agree, is a good thing!
By now, you must be asking yourself which side of this issue I reside on. Actually, it depends on which perspective that I am coming from.
Parents who have determined to escape the school system by taking the responsibility for educating their children themselves are advised to escape them completely. RESPs are entirely based on the presumption of school attendance and the normalization of the school to college system.
Therefore, my advice to true home educators is to stay clear of RESPs. They will not likely benefit you much in your tax planning and can create issues when your children reach college age.
To make sense of this last statement, I will have to refer to my other perspective, which is that of a retired public high school teacher.
I cannot tell you how many times I was approached by students in serious distress wanting to share their concerns and fears about “having” to go to college because their parents had mandated that they do so. The reason was most often because the parents’ had invested in RESPs and wanted to get the maximum out of that investment. Some of these “scenes” where anything but pretty.
Unfortunately this is where this tax reducing strategy differs from all the rest. It eventually involves the children.
If it so happens that the child has plans to attend college, then it could be a good thing. But if college is not what the child has in mind for his/her future, RESPs can create a major point of contention between the parent investors, who want to get the most from their investment and the student recipient who just wants to live his/her life in keeping with what interests him/her.
While parents may justify their RESP investment as an investment in the child’s future (which may indeed be the case if that child goes to a post-secondary institution) it can actually become more of a parent-benefitting tax reducing strategy than a child-benefitting instrument, if the parents place greater emphasis on maximizing the financial investment over the child’s educational desires.
One needs to understand that if the children do not advance to post-secondary institutions the parents could lose money on their investment and that is why they often push their child to attend college.
Now, if RESP contributions have been made, they are not restricted to a particular student as they can be transferred amongst children. Still, the maximum gains are made when children go to college.
If none of the children end up attending a post-secondary institution, RESPs can be collapsed back into the hands of the parents. However, if this is done, the benefit of the tax deferred growth within the RESP and the growth due to government contributions is lost.
TFSAs? Yes, absolutely and as soon as possible. RRSPs? Yes, but after TFSAs. RESPs? Your call, but understand that they may not be of great advantage if none of your children end up attending college, and understand that this could end up being a problem if maximum returns is more important than maximum familial well-being.
From my Christian perspective, I believe that God will make a way for His children. Having faith in His provision is much wiser than guessing what might happen in a future that you have no way of knowing or that does not really involve you as much as the children.
How about investing in a TFIG program? Try “Total Faith In God”! He not only knows the future of His children, but the best way to accomplish it. Now that is an investment sure to bring back good returns!
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