Tag: cesg

Cautionary tale: Decumulating RESPs

RobHLeave a comment

Most of the stuff I encounter online talks about how to invest in RESPs, how to maximize the grant allocated, strategies for investing, etc etc. Those days are long gone for me. I opened a family RESP when child number 1 was born, about 25 years ago now (!). Child #1 started post-secondary education in 2018, and child #2 started in 2020. So I’ve been withdrawing from RESPs for quite a while now. They are both still in school, but child #1 exhausted their funds earlier this year. (I know this because I set up a virtual mutual fund for them so they both got the same number of RESP units).

Anyway, an RESP that is no longer being contributed to has 3 components:

  • The money I contributed while the RESP was in accumulation phase
  • The money the government contributed through CESG grants which are “matching” insofar as they give you a percentage of whatever you’re contributing to a maximum annually, and a maximum lifetime. The maximum lifetime any beneficiary can get in grants is $7200. This is an important number, as you will see shortly.
  • The money that is due to growth (price appreciation, dividends, interest, all that)

When you withdraw from an RESP to give your kids (aka RESP beneficiaries), you can do it in one of two ways:

  • You can ask for an EAP, which takes CESG money plus growth money and is taxed in the hands of the student1
  • You can ask for a PSE, which takes money you contributed, and is not taxed since it was your after-tax money in the first place

Now, when you request an EAP (which, as I mentioned earlier, is a mix of CESG money and growth money), there is a formula the provider uses to calculate how much of that money should be from the CESG bucket.

What I didn’t know until lately is that:

  1. The CESG bucket is tracked per beneficiary, even during withdrawal.
  2. It’s not permitted to withdraw more than $7200 in grant money for a given family member.
  3. The amount of CESG each family member brought into the RESP isn’t relevant; it’s possible for a given family member to take out more CESG than was put in on their behalf, as long as the number is less than $7200

How do I now know all these facts? Well, my latest RESP EAP request for child #2 was rejected because in Questrade’s super-clear language:

The Withdrawal request is rejected for the time as the we are not able to process this request due to the transfer made in by QTRADE has beneficiary having $xxx which is , $yyy in CESG over than what a beneficiary can receive. Please provide a statement of account from CESP this would show all CESG grant received at all institutions. As we do not want to correct this information before any withdrawal is made as this can casue penalties for the clients.

My reaction to this was bewilderment. Along with a stream of invective.

The CESP, in case it’s not obvious2, stands for “Canadian Education Savings Programs” and is the federal program responsible for RESPs. After a few phone calls to Questrade support3 and the folks over at CESP, I think I have a handle on the problem at hand. Somehow, my EAP request would result in child #2 exceeding the lifetime CESG withdrawal limit of $7200. This I found a bit hard to understand because it would imply that child #2 had a far greater amount of EAP money than child #1. Now, while I didn’t track that maniacally, I did try to make EAP withdrawals somewhat even4.

I constructed a theory as to what happened.

When I moved my RESP from QTrade to Questrade in the great move of March 2025, somehow the CESG balances for each child had been communicated incorrectly. I vaguely remember a question on one of the many Questrade forms I filled out asking me what percentage of the RESP was attributable to each family member. The question didn’t make sense to me, so I probably just made it 50/50. I wasn’t really sure what the question was supposed to mean and how it might be used. Perhaps that 50/50 number was being used to track CESG already taken out? If so, it would underestimate the amount of CESG actually taken out by child #1.

Anyway, Questrade is wrong about my most recent withdrawal request, but now I’m stuck trying to convince them of that fact.

“Stuck” because:

  • Although the folks over at CESP are very nice, they won’t release a CESG statement to me because the beneficiaries are both adults. It’s their information, not mine.
  • Getting my busy young adults to prioritize sitting on hold with a government agency is, um, challenging. Neither of them live in the same city as I do.
  • And Questrade of course won’t take my word for it. They not-so-helpfully suggested that the agency could call them directly, to which I laughed out loud.

Anyway, I changed the most recent EAP request into a PSE request but there will be no more EAPs until such time as CESP produces a written CESG statement for both of my adult children and Questrade updates their math.

My advice?

  • Don’t move RESPs between providers 🙂
  • Track the CESG component of EAP payments if you have a family plan. Every EAP withdrawal generates a statement that shows how much CESG is in the mix, but of course there’s no tracking of the overall amount per recipient unless you track it yourself. This is easier said than done because the statement usually goes to the recipient of the funds; trying to get young adults to deal with paperwork is, um, challenging.
  • Get a CESG report from CESP before your kids turn 18

  1. There’s rules of all kinds that I won’t repeat regarding how much you’re allowed to take in the first few weeks of higher education. These don’t apply to me anymore since the kids have been enrolled continuously. ↩︎
  2. Of course it’s not obvious, but clearly Questrade thinks it ought to be. ↩︎
  3. Questrade knows the size of the 3 components of the RESP. ↩︎
  4. I vaguely remember QTrade showing a negative CESG balance for child #1 which made me concerned. Apparently, it’s ok for one family member to “steal” grant money from another as long as they don’t go over $7200… ↩︎

What’s in my RESP portfolio?

RobH2 Comments

As summer shifts into fall, I’m reminded that it’s back-to-school time. Or “Dad, I need money for tuition” time. I still have kids attending higher education, still making withdrawals from the family RESP we set up shortly after the birth of son #1, almost 25 years (!) ago now. RESP investing is a bit different from retirement investing given the (hopefully) shorter timelines of RESP investing1. Here’s how I approach it.

In the early days of the RESP, the contributions were invested in mutual funds; these were dark days, long before the rise of very cheap ETFs. Mutual funds were the ONLY way to make routine contributions (which I made, monthly, without fail — Pay Yourself First and all that). I had an 80/20 mix of equities and bonds in the first 18 years or so of its existence: 4 funds, one for US Equity, one for Canadian equity, one for international equity and one for bonds. I don’t remember the specifics of which ones and what percentages exactly. But the fund kept growing, thanks to market returns as well as CESG grant money, which I took full advantage of2!

As son #1 came close to entering post-secondary studies, I shifted the portfolio to a 60/40 mix using individual ETFs like HXS for US Equities, HXT for Canadian Equities, HXDM for International Equities, and CBO for Bonds. The GlobalX funds didn’t throw off dividends3 and so I just had to deal with the periodic (monthly) distributions of CBO, which ultimately were set to DRIP4.

I made the decision to move to 60/40 over 80/20 to preserve a bit more of the capital in the event of some kind of market meltdown5. Growth gets curtailed somewhat as a result, but there’s less volatility.

But I finally realized that all of this was completely unnecessary thanks to all-in-one ETFs. So now, the RESP has exactly ONE holding — XBAL, an all-in-one from iShares that takes care of the 60/40 split for me. And this is set to DRIP as well, so every quarter the RESP picks up a few more XBAL shares.

You can see how XBAL has preformed over the past 15 years or so. I’m comparing it to the 80/20 XGRO ETF from the same family, one that features prominently in my ETF All-Stars page6:

In a future post, I’ll explain how I fairly divide the RESP among my two sons — in essence, I pretended that the RESP was a mutual fund, with each son receiving the same number of units on the day the first withdrawal was made. Withdrawals are henceforth made in units, not dollars, and the unit price fluctuates with the value of the RESP.

How are you managing your RESP? Let me know at comments@moneyengineer.ca.

  1. Less time to build wealth, shorter runway for decumulation ↩︎
  2. As a certified cheapskate, it’s hard for me to resist free money of any kind. ↩︎
  3. They are “corporate class” ETFs that use a clever structure to avoid paying out dividends; all growth is buried in the increase of the ETF’s price. I still hold some of these in my non-registered accounts. ↩︎
  4. Dividend Reinvestment Plan. Instead of getting cash in the RESP account, the DRIP buys additional shares of whatever generated the dividend in the first place. ↩︎
  5. One may ask why I chose to stick with 80/20 in retirement, which is against some conventional wisdom. I figured that the RESP decumulation phase would be over a much shorter time period (say 5-10 years) and so I would be less able to wait for a market bounce-back. In retirement, I’m hopeful that decumulation will take much, much longer, and so with 80/20 I have a better chance of outliving my savings. ↩︎
  6. Chart is courtesy http://www.dividendchannel.com, featured on Tools I Use. When I rolled the comparison all the way back to 2007 the 60/40 XBAL actually OUTPERFORMED the (supposedly) more risky XGRO. Can’t explain that one. ↩︎