copy draft

Date: AUGUST 15, 2001

Project: EDWARDJONES FINANCIAL FOCUS ARTICLE

Subject: RESPs, individual and pooled

Ghost author: Kira Vermond

Head: Individual or Pooled RESPs?

Have you looked into the cost of a post secondary education lately? One year's school expenses -- including tuition and books -- now start from $12,000 and can be as much as $20,000. And who knows what the figure will be 18 or 20 years from now?

It's no wonder some parents put their money in a Registered Education Savings Plan, or RESP, a tax-sheltered investment plan to finance children's post-secondary education. Investors can choose from two types of RESPs: individual (or family, if there is more than one child) and pooled plans (sometimes called group or scholarship plans).

What's the difference? And, more importantly, what's right for you?

Individual plans are generally considered a superior investment because they are flexible and investors control the payouts. That means you decide where your money is invested and when. It also means you can take all the money out the first year of your child's post-secondary education, or wait until graduate school -- just as long as you close the plan within the prescribed 25-year limit.

These plans are also transferable. If your child doesn't continue school, the money can be passed on to another beneficiary (a sibling, for example) or you can transfer the available earnings into your own or spousal RRSP. Investors can also withdraw the money and pay a 20% charge and relevant taxes, or donate the money to a post-secondary institution of their choice.

These RESPs can be just as volatile as any other investment, however, so choosing the right one for your comfort level can take some research.

Pooled plans are the original RESPs and some believe they incur less risk because the money is invested in relatively "safe" investments. They are less flexible, however, as investors allow someone else to choose where the money goes. And there can also be up-front "enrolment," administrative, trustee and depository fees.

In this type of plan, money is "pooled" by non-profit foundations and invested in conservative guaranteed bonds or treasury bills. While this investment seems safe, it can be costly over the long haul if you don't play by all the rules. For instance, if your child does not carry on in school, you forfeit the interest on your contributions. The other children who continue their studies share the entire interest pool amongst themselves. Great for them, but not so good for you.

On the other hand, if your child is part of a pool in which many other children have dropped out of -- investors can't postpone a payment without being kicked out of the pool, for instance -- the result is a large pot at the end of the rainbow -- for you.

Like any other investment, if a sales person does contact you offering you a space in a pooled plan, remember to read the prospectus very closely -- and if you notice too many fees or punitive regulations, move along and find another that better fits your comfort level.

Remember that rules around RESPs are always changing. Talk to your financial advisor if you have any questions or concerns before signing the dotted line.

-30-