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Individual vs Family RESP Plans – Which One is The Best and Is The RESP The Best Option?

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When it comes to choosing between individual vs family RESP plans, the main difference is usually the number of kids. An individual RESP is an option for families with one child, while family RESP is for people with multiple kids. However at the time you have your first child, do you know if and when you will have your second? Likely not.

However, there are other factors that will guide you when choosing between the two plans when it comes to saving for your child’s future education. These include factors like contributions, the age of kids, and even the amount of contributions. 

If you’d like to better understand the differences between individual RESP vs the family RESP, then this guide is all you need.

RESP Family Plan vs Individual – Differences

To better understand the two RESP options, let’s take a look at the main differences between each plan.

The number of beneficiaries – In an individual RESP, you are allowed to have only one active beneficiary at a time. On the other hand, a family RESP allows you to have multiple beneficiaries.

Relationship with beneficiaries – For individual RESPs, you do not have to be related to the beneficiary, according to the income act. It is possible to save for your nieces, nephews, or cousins. However, for a family RESP plan, you must be related to the beneficiaries either by blood or by adoption so you can save for children, grandchildren, or siblings.

Age of beneficiaries – For family RESP, you are only allowed to add beneficiaries below 21 years. The contribution can be made until the beneficiary reaches 31 years. With an individual RESP, you can add the beneficiary at any age, and the contribution can be made up to 31 years after the plan has started.

Owner of the property – With an individual RESP, the contributor is the one who owns the property, while in the case of family RESP, the owner of the property is the beneficiary.

Who is it ideal for? – Individual RESP is ideal for single child parents who do not plan to have more kids in the future.  It is also an option for parents who have a huge age gap between children. 

How does family RESP work?

With family RESPs, you have a lifetime limit of $50,000 per child. If you contribute $2,500 per year, you will be eligible for a government grant of $500 per year. Here, each child’s contribution will be tied to their social insurance number.

It is advisable to contribute for each child with their age in mind. You need to remember that eligibility for the grant ends at 17 years, so give priority to older children so that they can receive CESG grants.

Family RESPs allow people to share the money among their children. This is important when one child spends more on tuition fees while the other spends less. It is easy to redistribute the money so that everyone is taken care of.

How does an individual RESP work?

An individual RESP is for one beneficiary. And, you do not have to be the legal guardian to contribute for beneficiaries, although you have to get permission from the parents. 

An important note about an individual RESP is that you can contribute one for yourself. Teenagers can start putting money for themselves for future use, and the money can be contributed up to 31 years.

RESP Family Plan vs Individual: Which one is the best?

The choice between individual plans and family plans is up to you. None is superior, so it comes down to your needs. For instance, if you want to save money for yourself or for kids not related to you, then using an individual RESP is an option.

But before you choose any form of RESP, make sure that you analyze your needs so that you can make the right choice.

If this all sounds complicated, it is!

There is one unfortunate factor parents need to consider with an RESP if it’s a family RESP.

If one child doesn’t follow the government path for their education and you shift all the savings to the second child, there may be a family issue as one child feels that they have been treated unfairly.

Best RESP alternative

Saving money every month is a great way to give our children the head-start they deserve. However, options to save money for your child’s future can be limiting. But it doesn’t have to be.

For instance, the fastest growing alternative to RESP is opening a Child Plan Participating Whole Life plan. Participating Whole Life Insurance for Children is the best alternative to an RESP according to the Globe and Mail to help parents save for their children’s future and dreams. Whatever they may be! No government rules, no restrictions.

  • Unlike with RESPs that only allow parents and grandparents to save for the childrens’ education, Child Plan allows parents and grandparents to simply save money for the childrens’ entire future. The child can choose to use the funds to go to any university, school abroad, go to a trade school (most trade schools don’t qualify under the RESP program), start a business, use it for a downpayment or anything else they wish to spend the money on. 
  • Parents and grandparents are able to open a participating whole life insurance plan starting for children as young as just 14 days old! 
  • From the day you open the account, your child will receive an annual dividend, as well as cash values tax-free for life,
  • In addition to being a great way to save for your child’s future, Child Plan also gives parents full control over the account, meaning they can choose when they feel their child is ready for their investment at any time after they turn 18. Not required like the RESP.
  • You are not legally required to transfer it to them until you feel they will be ready to manage the money. 
  • There are no taxes the day you transfer the plan to your child or grandchild regardless of the amount of cash value in their Child Plan!
  • Parents can open a plan for each child and each child can have their own plan for their dreams. 
  • Each grandparent can open a plan for each grandchild, even if the parents opened an RESP or if they have their own Child Plan for their child.

Child Plan is committed to helping parents and grandparents plan for their children’s futures. Whether their dream is to get a first-rate education, buy their own home, start their own business or travel the world.

To get a plan that fits your anticipated child’s needs, you can always request a personalized Child Plan illustration here. Find out how much money you’ll need to save each month for your child to have $100,000 when they turn 18.

FAQ

Will RESP cover vocational courses?

When people think about RESP, the first thing that comes to mind is post-secondary education like university. However, RESP covers many forms of post-secondary education but not all.

It can cover vocational and technical training. You can also pay for an apprenticeship with money saved. Always check the list of Government approved courses covered by RESP to learn more. However as new parents, do you know today when you make this bid decision what your child will do when they are 18? 

What’s the risk of opening an RESP for my child’s future?

The biggest risk of an RESP is the unknown. Every parent has dreams for their child from the moment they hold them. However at the time you’re opening your RESP your brand new baby hasn’t even uttered their first word or taken their first step and the banks and Government want you to make an investment decision on what your child will or won’t do when they are 18. The biggest risk is that after 18 years of saving for their education, the entire world of education will be different from what the government intended the money you saved for and now they can’t use it, or your child may choose a different path than what the government has set.

To use the grants the government gives you each year, your child at 18 has to follow the government set path or lose the grants. 

Another risk is that if your child doesn’t follow the government set path to use the RESP you must return every dollar the government gave you, even if you or your investment advisor lost the money in the stock market.

And finally, there is the biggest risk of all. Disappointing your child. The risk you face is that if you or your advisor make bad investment decisions with the RESP you could suffer losses at the worst time. Just as your child is expecting their education savings to be ready for them, you have to tell them there isn’t enough to cover their education due to investment losses.

Unless you know how to invest money safely and manage every decision, every bank mutual fund salesperson who opens an RESP account for you, will sing the praises of the stock market and assure you that the money will grow exponentially based on the last three years of experience.

Did you know that over 25 years the stock market lost money 25% of the time. What if the moment your child needs the funds, they aren’t there. 

Do you really want to gamble with your child’s future education savings?

When can you open an RESP?

It is advisable to open an RESP as early as possible. If you start saving before your child is 17 years, that is even better because they will be eligible for CESG grants longer than otherwise.

However it’s important to remember that you only get a maximum of $500 per year in matching grants and you can’t go back 15 years if you start at 16. You can only carry forward for two years. If you miss the first then you can double up on the second and that’s all.

What if your child does not pursue post-secondary education?

When you have a baby, you hope for the best but the fact is you have absolutely no idea who they will become and what they will want to do when they are 18. Some kids might decide to follow a different path than going to university and pursue other passions that do not require post-secondary education. If that happens and your child chooses a different path that won’t allow them to use their RESP you have the following choices

  1. You can keep the RESP open for 35 years after the date it was first opened but you can’t access the funds
  2. You can close the RESP and receive your original contributions without taxes, since you paid taxes on your income before you deposited it into your RESP for your child
  3. You have to return all the CESG grants the government gave you, even if you lost the money on the stock market.
  4. You can only access the growth in the account after your child turns 21. At which point you will have to pay all the taxes on the growth at your income tax level PLUS another 20% penalty. 

Can you have more than one RESP?

There are no limits on the number of RESPs that you can open. However, there is a maximum on the annual amount you can contribute to an RESP. You can’t open two RESPs and deposit $2500 in each with the hope the government gives you two times the $500 matching CESG grants since all banks and group RESP companies report how much you contributed.  

Each beneficiary has an annual limit of $5000 and a lifetime limit of $50,000 so if you have multiple people opening RESPs for your child, make sure they all coordinate with each other on how much each should deposit or you run afoul of the government rules.

Sounds complicated? It Is!

Can your child still get student loans with RESP?

Yes, your child can still get student loans even if they have RESP. Most parents save for post-secondary education for their children to protect them from taking unnecessary loans.

Is there an alternative to the RESP? 

Yes, Child Plan is a Participating whole life plan and the fastest growing alternative to the RESP in Canada.

In comparison to the RESP, Child Plan isn’t a government controlled plan, it’s your private investment for your child’s future.

Is there a family or individual Child Plan?

No, Child Plan is one per child. Unlike the RESP your child doesn’t have to go to a government approved university or education program to use their Child Plan and if they choose a different path they don’t lose their Child Plan since you don’t have to close it down. Which means each child can have their Child Plan for any education they want or anything in life they want to do. 

 Will Child Plan cover vocational courses?

Child Plan has no restrictions on where and what your child wants to study and it can be used from anywhere in the world. Unlike the RESP, Child Plan is a global education savings plan for their education but also for life.

What’s the risk of opening a Child Plan for my child’s future?

There is no risk to opening a Child Plan for your child’s future because of its flexibility. Your child is free to use their Child Plan for whatever they want to do in life, not only education.

The cash values are guaranteed and will never decline when the stock market falls. Additionally you have no investment decisions to make because the annual dividend is guaranteed.

There is a defined date when you’ll never have to make another deposit ever again and your Child Plan will continue to grow.

Unlike the RESP you have control of the cash value even after giving this incredible gift to your child.

You have the ability to transfer the Child Plan at any time after they turn 18. As their parent, you want to protect them from themselves and if you don’t think your child is ready until they are 30 years old to manage this investment with hundreds of thousands of dollars, then don’t transfer it until they are 30.

And when you transfer it, it’s completely tax free.


Request a personalized Child Plan today to see what their future will look like and imagine the day you give them the gift you set up for them the day they were born.

Sample illustration of Child Plan™ Cash and Insurance Values

Based on a Monthly Deposit of $250 per month

Age Accumulated Cash Value Life Insurance Value
20 $82,568 (Education) $612,728
35 $177,953 (House) $1,115,297
45 $303,299 (Security) $1,115,297
65 $834,276 (Retirement) $1,666,824

Sample illustration is based on a monthly contribution of $8.32 a day/$250 a month for twenty years, starting when the child is less than 1 years old. Cash and life insurance values are based on the current dividend interest rate of 6% from a Canadian life insurance company. This example is strictly for illustrative purposes only, the annual dividend scale is not guaranteed and values may differ.

Personalize Your Child Plan™

Request a Child Plan™ Illustration and see how much cash value your child will have for their education and for life.

Request Illustration

*illustrations are reflective of the annual premium amount

Have a question about Child Plan or wish to speak with a Family Advisor?