Natasha Macmillan, Business Unit Director - Everyday Banking
Withdrawals from an RESP are an important aspect to consider as you plan for your child’s education. Here are some things to be aware of with RESP withdrawals:
- Educational Assistance Payments (EAPs): EAPs are the portion of RESP withdrawals used for post-secondary education expenses. To qualify for EAPs, the beneficiary must be enrolled in an eligible educational program at a post-secondary institution. EAPs consist of the accumulated income and government grants in the RESP account. They are taxable once withdrawn by the beneficiary, usually resulting in lower taxes due to the student’s lower income.
- Contribution withdrawals: You can withdraw your original contributions (the principal) from an RESP tax-free. These withdrawals are not taxable as contributions were made with after-tax dollars.
When looking to EAP withdrawals, there are some rules to keep in mind:
- The beneficiary must be enrolled in a full- or part-time eligible post-secondary educational program
- If the beneficiary is enrolled in a full-time program, they can withdraw up to $5,000 of EAP during the first 13 consecutive weeks of enrollment and any amount after
- If the beneficiary is enrolled in a part-time program, EAP withdrawals are limited to $2,500 for every 13 week period of enrollment
RESPs may have their own rules and options with regard to withdrawals, so it is important to consult your RESP provider or a financial advisor who can provide personalized advice.
Unused RESP funds
If the beneficiary or beneficiaries do not use the full amount in the RESP, there are several options.
- Keep the RESP open and leave the money for future studies. An RESP can remain open for up to 36 years, even though contributions can only be made for 31 years. However, after 36 years, the account must be closed. after this time.
- Transfer to another beneficiary. If you have an individual or family RESP, and the original beneficiary decides not to pursue post-secondary education, you may have the option to transfer the funds to another eligible beneficiary within the plan. This way, the funds can still be used for educational purposes.
- Transfer the money to other registered savings plans. In most cases, you can transfer RESP savings to the sponsor’s RRSP plan. However, it is important to consider contribution limits and tax considerations associated with this option.
In certain cases, a withdrawal of investment income and growth, known as an accumulated income payment (AIP), can be taken for non-educational purposes. To be eligible for an AIP:
- The RESP must have been open for at least 10 years, and the beneficiaries must be at least 21 years of age; or
- the plan must have been open for 36 years.
When an AIP is withdrawn, any government grants received within the RESP, such as the Canada Education Savings Grant (CESG), must be returned to the government. The maximum amount of the accumulated income that is available for transfer is $50,000 per subscriber. It is important to consider the tax implications of an AIP and it is advised that you consult a financial advisor if considering this type of withdrawal.