Should hockey parents ditch RESPs?

Any hockey parent can tell you that paying for hockey isn’t cheap. The more elite children get, the higher the fees. But if you’re looking to cut costs, think twice about dropping your RESP payments.

Only 0.1% of Ontario hockey kids will ever play one game in the NHL. And, even if your child beats the odds, he may still want to attend school after his career. More likely, though, he’ll simply be heading to university after high school.

It’s your job budget for ongoing hockey fees, while simultaneously funding an RESP for post-secondary school. That might feel like you’re not supporting their dreams with conviction, but you can support their aspirations while still having a backup plan.

Consider these scenarios.

Scenario 1: Your child goes to school after a hockey career.

Is the RESP beneficial? Yes.

An RESP can remain open for 35 years, giving a player the opportunity to return to school even after a successful NHL stint.

The average career length of all retired NHL players is 5.65 seasons, says website Quant Hockey. While the player may have been earning a large salary during those seasons, he may choose to go back to school after retiring.

Frank Di Pietro, Mackenzie Investments’ director of tax and estate planning, says, “If the hockey player’s career is over, they’re likely going to see a sudden drop in tax bracket.” If at that point he chooses to go back to school, he’ll be taxed at his new lower tax bracket.

Even better, Di Pietro shows how an RESP can grow if the child doesn’t go to school right away. With the same levels of initial contribution, an $81,000 RESP at age 18 will grow to an RESP of $163,000 by age 30.

Scenario 2: Your child doesn’t go to school after hockey career.

Is the RESP beneficial? Yes, as a safeguard.

If your child has an extended career, or stops playing and immediately starts a hockey-related career (such as coaching or broadcast commentating), what happens to the funds in the RESP?

You can transfer the funds to another child. If you don’t have one, you can receive the money as a lump sum.

Here’s how that works under the different types of plans.

Family plan

“With a family RESP,” says Di Pietro, “it gives [you] more flexibility to allocate money amongst other family members.” This plan requires the child to have at least one sibling, and you must include each child on the plan when it’s opened.

If the hockey-playing child doesn’t attend post-secondary, the funds can easily be transferred to his sibling.

Individual plan

If you have only one child, this is your plan. Although you can have individual plans for multiple children without a penalty to transfer RESP funds between them, you should consider family plans because any fund transfers are easier, especially if one child decides not to attend post-secondary.

You can consolidate individual accounts as long as the receiving RESP beneficiary is under 21 and a sibling.

Accumulated Income Payments

If no child goes to school, you can withdraw the funds as an accumulated income payment (AIP).

When an RESP closes, contribution money is returned tax-free. Canadian Education Savings Grants (CESGs) go back to the government, and the earnings on both the contributions and the CESGs are returned to you in the form of an AIP, says Di Pietro.

The AIP is taxed at your tax rate, plus a 20% penalty. But, you can avoid tax and penalties if the AIP is paid directly to an RRSP.

To receive an AIP, here are the conditions that you need to meet:

• You must be a Canadian resident;
• The plan has to have existed for at least 10 years; and
• The intended beneficiary must be at least 21 years old.

If your family were to leave Canada to pursue your child’s pro hockey career, you wouldn’t be eligible for an AIP. Di Pietro suggests in such a situation, you keep the RESP open as you could be eligible for the AIP down the road.