Siblings already share a lot of things- toys, clothes, parental attention… Should they share a RESP in a family RESP too? This post will go over some of the pros and cons of a Family RESP.
We finally got around to it after going through our financial checklist as new parents again, and recently opened up another RESP for our daughter (the new Baby GYM). We had all the paper work ready, including her birth certificate, her social insurance number, and our government issued ID’s to apply for another RESP account. Our bank representative recommended that we change the RESP we had for toddler GYM to a family RESP and add her name as one of the beneficiaries.
That way, if one of them decides not to go to school or has different pricing for schooling, then it will be easier to manage since they would both share the RESP. This post will explain whether a family RESP vs individual RESP will be better for your family.
Related: What is an RESP grant?
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What is a Family RESP?
A family RESP is where the subscriber (for example, you, the parents) can name more than one beneficiary to the RESP plan.
According to Canada.com:
Family plans are the only RESP that allow subscribers to name more than one beneficiary. Each beneficiary must be connected by blood relationship or adoption to each living subscriber or have been so tied to a deceased original subscriber.
A beneficiary under a family plan entered into after 1998, must be less than 21 years of age at the time he or she is named as a beneficiary. When one family plan is transferred to another, a beneficiary who is 21 years of age or older can still be named a beneficiary to the new RESP.
A Family RESP plan is NOT to be confused with a pooled RESP plan or a group RESP plan (also known as group scholarship trusts), which are heavily marketed and according to Boomer and Echo should be avoided.
A group RESP should be avoided because there are high fees if you need to change or collapse the account, and many parents have reported that the balance of their RESP is very low.
Basically many people feel that group RESPs are a scam. I always avert my eye contact when I see eager, smiling young 18 year olds at the mall trying to sell Heritage Education Fund RESPs anyways when I pass by (do you?).
Pros and Cons of a Family RESP
Our bank representative recommended using a Family RESP because it is more simple to set up. The pros of the Family RESP is that you would save on investment fees. It is more straightforward when you set one up because it is less paperwork for your financial institution to do. As mentioned, another positive is that it allows for flexibility come RESP withdrawal time.
If one child decides not to go to post secondary education (*Gasp* the nerve of your child) or one child goes to a school that costs much more than the other child (Ivy league education in the US, anyone?), then you have flexibility when it comes to your RESP withdrawal.
The downside of the family RESP is during the contribution stage of the RESP.
When you contribute to the family RESP (once there is more than one beneficiary), it will automatically split your contribution for the year into two, or 50% (if you have two beneficiaries on the plan).
Each time you contribute to your RESP, you will have to call in to your bank (or institution with your RESP account) and specify what amount of the dollars you are contributing goes to which individual in the family RESP account.
This sounds very annoying to have to do (especially in this first year of the family RESP, since we already contributed to toddler GYM’s RESP), but it is just difficult in the first year, I suppose and is important to do.
After you’re done having kids and adding to your Family RESP it becomes straight forward.
If you neglect this step, it can be an RESP contribution nightmare and big hassle. You will end up having differing amounts of contribution in your children’s RESP accounts that you didn’t intend to have.
Moneysense’s Bruce Sellery also recommends a family RESP.
Pros and Cons of an Individual RESP
Now that we’ve talked about family RESPs and benefits and drawbacks, here are the pros and cons of an individual RESP.
With an individual RESP, you might think that if one decides to go to a post secondary school that costs more or one child decides not to go to post secondary school, then it would be difficult to transfer money from one sibling to another. No, it’s not difficult but it does require a transfer and is only allowed (without tax implications) between siblings.
Also, the most important thing to note is that when you transfer your RESP to the other sibling, it has to be done before age 21 unless the receiving RESP plan is a family RESP plan.
When should you sign up for an individual RESP? Obviously if you are planning to have only one child then an individual RESP makes sense.
A little bit more in the grey zone: If you have a child and aren’t planning to have another child for a few years later, like a larger age gap between siblings (I would say 4 years and up), then an individual RESP will make sense too. This is because it might be difficult to be contributing and at the same time withdrawing from the RESP, to keep track of it all.
Another pro for the individual RESP is if you are an aunt or an uncle, or cousin, you can open an RESP account for an individual. With a Family RESP account, the beneficiaries have to be related to you by blood or adoption.
You cannot open up a Family RESP plan for your niece or nephew.
One more pro about the individual RESP is that there is no age limit. For the family plan, the beneficiary has to be named into the plan before they turn 21.
Related: Justwealth vs Wealthsimple RESP
To Share or Not to Share the RESP
As mentioned, siblings share a lot already. Whether your family opts for the individual or the family RESP is a personal one, and there are definitely benefits and drawbacks to both. It also depends on whether you plan to have more than one child, and how spaced apart your children are in age.
Personally I would have preferred to have individual plans (I like to have separate accounts and keep track of things separately- what’s wrong with me??). My husband prefers to keep it simple and just have a family account because it’s family.
But to be honest, I don’t mind having a family RESP plan- it provides a bit more of a cushion or buffer to what the future might hold. It allows some flexibility for our children and what they might decide to do for their post-secondary education.
Here’s a handy PDF from the government of Canada outlining the differences between the Family RESP vs Individual RESP plan.
Parents, do you have a family or an individual RESP?
How are the differences between the family RESP vs individual RESP come RESP withdrawal time?
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GYM is a 40 something millennial writing about personal finance since 2009 and interested in achieving financial freedom through disciplined saving, dividend and ETF investing, and living a minimalist lifestyle. Before you go, check out my recommendations page of financial tools I use to save and invest money. Don’t forget to subscribe for a free dividend yield spreadsheet and the free Young Money Bootcamp PDF.