As a dedicated saver in a Registered Education Savings Plan (RESP), you’ve worked hard to build a robust educational fund for your child. Now that they’re preparing for post-secondary education, it’s crucial to understand how to manage RESP withdrawals effectively. This guide will provide a comprehensive overview of RESP withdrawal rules, limits, and tax implications to help you make the most of your savings.

 

Utilizing RESP Funds

You can begin withdrawing from your RESP once your child has completed high school and enrolled in a qualifying post-secondary institution. RESP funds are versatile and can cover a wide range of educational expenses, including tuition, books, and other costs associated with both full-time and part-time studies.

 

How to Withdraw from an RESP

Navigating RESP withdrawals involves understanding a few key terms:

 

Subscriber: The person who set up the RESP and is authorized to make contributions and withdrawals.

Beneficiary: The individual designated to benefit from the RESP.

 

To initiate a withdrawal, the subscriber must provide proof of the beneficiary’s enrollment in a qualifying educational program. There are two main types of withdrawals:

 

Post-Secondary Education (PSE) Withdrawals: These withdrawals are made from the contributions you’ve made to the RESP. Since these contributions have already been taxed before being deposited, PSE withdrawals are tax-free.

 

Education Assistance Payments (EAPs): EAPs include the investment earnings and government grants (e.g., Canada Education Savings Grant (CESG) and Canada Learning Bond (CLB)). These withdrawals are subject to tax as income for the beneficiary. However, most students have low income and available education tax credits, which often results in minimal tax liability.

 

Tax Implications and Withdrawal Limits

PSE Withdrawals: Since these are withdrawals of previously taxed contributions, they are not subject to additional taxes.

EAP Withdrawals: During the first 13 weeks of the beneficiary’s enrollment, there is a limit of $8,000 (or $4,000 for part-time students) on EAP withdrawals. After this period, you can withdraw any amount. EAPs are taxed as income to the student, though this often results in little to no tax due to the student’s typically low income.

 

What If the Beneficiary Does Not Pursue Post-Secondary Education?

If your child opts not to pursue post-secondary education right away, you have several options:

 

1) Wait and See: RESPs can remain open until the end of the year in which your child turns 35. This allows time for your child to pursue eligible educational programs in the future.

2) Transfer to RRSP: You can transfer up to $50,000 of RESP funds to your RRSP or your spouse’s RRSP, provided there is sufficient contribution room. This strategy can offer significant tax advantages and enhance your retirement savings.

3)Transfer to Another Child: If you have additional children, you can transfer RESP funds, including government grants, to another child’s RESP if they are under 21. Transfers for beneficiaries over 21 may require repayment of some grants and could have tax implications.

4) Make a Donation: Consider donating RESP investment growth to an educational institution. Donations to registered institutions may also provide you with a donation receipt for tax purposes.

5) Understand the Closing Rules: When closing an RESP, be aware of the following:

• Contributions: Can be withdrawn tax-free.
• Grants: Must be repaid to the federal government.
• Investment Growth: If all beneficiaries are over 21, not in school, and the RESP has been open for at least 10 years, investment growth is taxed as income at your regular rate plus an additional 20% (or 12% for Quebec residents).

By familiarizing yourself with these RESP withdrawal rules and limits, you can better manage your educational savings and make informed financial decisions. For personalized advice tailored to your specific situation, feel free to reach out to us at Pharus Wealth Advisory Group of CIBC Wood Gundy.