RESP Withdrawals: What you need to know
An RESP is a very powerful investment tool that can help you save and pay for your child’s post secondary education.
There are important rules when it comes to withdrawing funds from your RESP Plan.
A breakdown of the plan can help to understand the withdrawal rules and regulations:
Firstly, the RESP Plan is broken down into 2 assets:
1. Post Secondary Education Payments (PSE)
This is the contributions/capital that the Subscriber has made into the plan. Withdrawals of contributions/capital will not be taxed.
2. Educational Assistance Payment (EAP)
This consists of the Canadian Education Savings Grants(CESG) and the growth in the account. Withdrawals of EAP will be taxed as ordinary income for the Beneficiary.
The rules of Withdrawing from your RESP Plan
The subscriber to the plan must request a withdrawal from the Capital and/or EAP portion of the plan.
There are limits to what can be withdrawn, depending if the Beneficiary is enrolled in Full time or Part time Post Secondary Education.
Full Time Students can withdraw a maximum of $5,000 from the EAP portion of the plan in the first 13 weeks of enrollment, and after the first 13 weeks there is no limit to the amount that can be withdrawn from the EAP Portion. However, there is a limit on the total Grant withdrawal per Beneficiary; a maximum of $7,200 in Grants can be withdrawn.
Part Time Students are limited to a maximum of $2,500 from the EAP portion every 13 weeks. Also, the total Grant Withdrawal from the EAP Portion cannot exceed $7,200 lifetime.
Proof of enrollment into a Post Secondary School must also be provided to qualify for the withdrawal.
The list of Post Secondary Schools include Canadian Universities, Community Colleges as well as numerous Universities outside of Canada as long as the course lasts a minimum of 13 consecutive weeks.
Apprenticeship Program may also qualify as Post Secondary Education.
For a complete list of the Government’s approved post secondary Apprenticeship schools, please click: Link.
What happens if your child does not continue education after high school?
There are several options for the Subscriber:
- Leave the money in the RESP Plan: An RESP Plan can be left open for up to 36 years, in case your child decides to continue post secondary education at a later time.
- Replace the Beneficiary: If an individual plan, you may have the option of naming another beneficiary. Some rules may apply.
In a family plan, you can use the earnings and certain federal and provincial grants to pay for the education of another child under the plan. - Transfer the money to your RRSP: You may be able to transfer up to $50,000 of earnings tax-free from the RESP to your RRSP if:
The RESP has been open for at least 10 years;
All beneficiaries are at least 21 and not currently continuing their education after high school;
You have room to add money to your RRSP;
You are a Canadian resident;
And the rules of the plan allow it. - Close the RESP: Your contributions(capital) are yours to keep, you do not pay taxes.
You must return all remaining grants and bonds to Government since this money can only be used for post-secondary education. Also, you can get your investment earnings out of the plan if if has been opened for 10 years or more and the beneficiaries are at least 21 are not currently continuing post secondary education. - Transfer the money to an Registered Disability Plan (RDSP) if applicable: You may be able to transfer investment earnings from your RESP to a RDSP if the plans share a common beneficiary and one if certain conditions are met.
The beneficiary of the RESP has a severe and prolonged mental impairment that can reasonably be expected to prevent the beneficiary from pursuing post secondary education, the RESP has been opened for at least 10 years and each beneficiary is at least 21 years of age.
For additional information please contact our office.