Q & A – Registered Education Savings Plans

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by Cynthia Batchelor, BCom, Financial Advisor
O’Farrell Wealth & Estate Planning | Assante Capital Management Ltd. 

With school just around the corner, you may wonder ‘how do I get funds out of my child’s self-directed RESP for post-secondary education’? One question that often comes up is: does the withdrawal amount need to equal the cost of the school tuition, books etc.? The answer is NO. No one is auditing what the money that is withdrawn is spent on. It can be used for rent, transportation, utilities, tuition, books, or food. 

Q: How do I get money out of a self-directed RESP?

A: Once your child has enrolled in post-secondary school (university, college, trade school), they are entitled to withdraw up to $8,000 in Education Assistance Payments (EAP) from the RESP in their first 13 weeks of full-time school. This portion of the payment is from the growth and government grant inside the plan and is taxable to the beneficiary (child). They can also withdraw any amount of Post Secondary Education (PSE) from the plan. This portion of the payment is your capital and is not taxable. After the first semester, there are no restrictions on withdrawals for full time studies. Part time studies (Specialty Courses/Programs) are restricted to $4,000 per program/semester. (Note: the Canadian government recently changed legislation to reflect these increased numbers in 2023.)

Q: What constitutes proof of enrollment?

A: A letter from the Registrar of the school, a copy of your child’s timetable with their name, student number, and school name.

Q: What if a beneficiary does not pursue post-secondary education?

A: There are several options:

You can wait – the plan can remain open for 36 years

You can choose a new beneficiary – in an individual plan, this can be anyone, but if it is not a sibling under 21, the grants must be repaid. In a family plan, the CESG can be allocated to other family plan members; if the amount is over $7,200 then excess grant needs to be repaid.

You can roll the RESP into your RRSP – the grants will be returned to the government, the capital can be withdrawn, and the income can be rolled into your RRSP, so long as you have the room to a maximum of $50,000 per contributor.

You can withdraw contributions anytime from the plan – however when you do so, the grants will be repaid to the government. 

You can withdraw earnings and growth – an Accumulated Income Payment (AIP). If all beneficiaries have reached the age of 21 and are not attending post-secondary education, and the RESP has been in existence for at least 10 years, you can make an AIP payment – it is taxable at your marginal tax rate plus a 20% penalty tax.

You can roll the RESP to an RDSP – if the beneficiary has become disabled, you are able to move the accumulated income to an RDSP on a tax deferred basis with no 20% penalty.

 

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