As parents, we want to give our children the best possible future, and saving for their education is a big part of that. While many parents consider a Registered Education Savings Plan (RESP) as the go-to option for education savings, it’s worth taking a closer look at how it compares to the Infinite Banking Concept (IBC) using a Dividend-Paying Participating Whole Life Insurance Policy. Below, we’ll break down some of the critical differences between the two options so you can make an informed decision about what works best for your family.
1. Fees When Over-Contributing vs. Paying Policy Premiums
RESPs have strict contribution limits, and exceeding them can lead to unexpected penalties. Currently, any amount above the lifetime limit of $50,000 per beneficiary incurs a 1% tax per month on the over-contribution. You must pay this penalty to the Canada Revenue Agency (CRA) within 90 days after the calendar year in which you contributed too much—a surprise for many people.
With IBC, however, there are no penalties for contributing more than expected. While you need to pay premiums on your Dividend-Paying Participating Whole Life Insurance Policy, you’re not penalized for contributing extra. In fact, paying additional premiums can increase the cash value of your policy faster, giving you more financial flexibility down the road.
2. Fees If the Child Doesn’t Go to School
One of the biggest drawbacks of RESPs is what happens if your child doesn’t go to post-secondary school. If that occurs, you’ll face penalties and taxes on the government grant portions of the RESP. Additionally, the growth within the RESP will be taxable when withdrawn for non-educational purposes.
With IBC, there’s no such limitation. Whether your child decides to attend school or not, the cash value within the policy is still yours to access, tax-free, and without penalties. You maintain complete control over the funds, regardless of your child’s educational choices.
3. Restrictions on Accessing Funds vs. Full Policy Access
When it comes to RESPs, you can’t simply withdraw the full amount whenever you want. The government requires that funds be withdrawn gradually to ensure the child is actually attending school. This can limit your flexibility in covering other significant education-related costs upfront, such as tuition, books, or accommodations.
With IBC, you can access the cash value in your policy at any time, for any reason. There are no restrictions on how much you can take out at once, meaning if your child’s education requires a large sum of money upfront, you have the freedom to cover it without government oversight.
4. Not Having Enough Funds in an RESP vs. IBC Providing More Security
An RESP is only funded by what you put into it, plus government grants and minimal growth. Unfortunately, many families find that after 10-15 years, their RESP hasn’t accumulated enough to fully fund their child’s education, forcing them to find more money elsewhere.
In contrast, with IBC, a properly funded policy could have a significantly higher cash value after 10-15 years of growth. Since the policy is also growing through guaranteed compounding and potential dividends, the funds available will likely be much more substantial than an RESP, allowing you to cover more of the educational costs—or even all of them—without searching for additional resources.
5. Tax Requirements and Locked-In Funds vs. IBC’s Flexibility
When you withdraw money from an RESP, the funds are taxable in the child’s name, and you’ll need to carefully manage the timing of withdrawals to avoid a heavy tax burden. Moreover, RESP funds are locked away until they can be used for educational purposes.
On the other hand, IBC offers complete flexibility. Your policy’s cash value is accessible tax-free via policy loans, and you can use the money for any purpose, not just education. Whether you need the funds for educational expenses or something else entirely, the money is there when you need it—no taxes, no restrictions.
While RESPs are the more traditional route for saving for your child’s education, they come with significant limitations and risks. From contribution penalties to strict withdrawal rules and taxes, RESP funds can feel more like they’re under government control than yours.
By contrast, Infinite Banking using a Dividend-Paying Participating Whole Life Insurance Policy offers flexibility, control, and compounding growth that can fund your child’s education—and much more. You’re not locked into a one-purpose fund, and you’ll never be penalized for how you choose to use your money. For families looking for a more secure, flexible way to plan for education and beyond, IBC is a solution worth considering.
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