How do I access the funds in my RESP?
If you’ve spent several years saving up for your child’s post-secondary education, regularly contributing to a registered education savings plan (RESP), eventually, you and your child will need to access those funds. Depending on your situation, you have a few options.
However, because the money in an RESP can come from different sources – your contributions, income earned on your investments, as well as Canada Education Savings Grants (CESG), Canada Learning Bonds (CLB) or provincial grants – there are different tax implications, depending on how the money is withdrawn.
How do RESP withdrawals work?
The person who sets up the RESP (usually a parent) is the owner of the funds and is the only person who can request payments from the account. Once your child enrols in qualifying post-secondary education, you can make withdrawals of your RESP contributions from the account.
These withdrawals for education purposes are called Post-Secondary Education Payments (PSE). Because your RESP contributions were made with after-tax dollars, there is no withholding tax levied, nor any limit to the amount withdrawn.
The withdrawal of the earnings (interest, dividends and capital gains) accumulated in your RESP, and any government grants or bond portions are called Educational Assistance Payments (EAP). These are paid to your child, the beneficiary, and are taxed as income in their hands.
NOTE: As of March 2023, the EAP limit was increased from $5,000 to $8,000 for the first 13 weeks of enrollment in a qualifying full-time educational program, and from $2,500 to $4,000 for a qualifying part-time program.
What if my child doesn’t enrol in post-secondary education?
In the event that an RESP beneficiary does not intend to use the education savings (for example if they opt not to attend post-secondary education at all), your options will depend on what type of plan you have. If you’ve invested in an individual or family plan, you have four options:
1. Keep the account open in case your child changes their mind.
RESP accounts can remain open until the end of the thirty-fifth year after they were opened, giving beneficiaries plenty of time to use the funds.
2. Transfer the funds to a different beneficiary.
Family plans give you the flexibility to change beneficiaries whenever you want, provided that anyone added to the plan is under 21 years old and has a valid social insurance number (SIN). Individual plans, meanwhile, will typically give you the opportunity to name a replacement beneficiary.
3. Transfer the funds to a different registered account.
If there is available contribution room, the plan subscriber (usually you, the parent) can choose to transfer the savings (minus CLB, CESG or provincial grant funds) to your personal registered retirement savings plan (RRSP).
4. Withdraw the funds and close the account.
The savings will be disbursed as follows:
- any CESG, provincial grants or CLB funds you received would be returned to the appropriate government entity
- any contributions to the RESP would be returned to you, the plan subscriber
- any income earned would be paid out to the you if three conditions are met:
- your child (the RESP beneficiary) is at least 21 and is not eligible for the savings,
- you are a Canadian resident, and
- the RESP account is at least 10 years old
If these three criteria are met, the earned income can be withdrawn as an Accumulated Income Payment (AIP), which would be subject to regular income tax (in your hands), plus an additional 20% (or 12% for Quebec residents).
Other RESP resources
The information contained in this article was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This material is for informational and educational purposes and it is not intended to provide specific advice including, without limitation, investment, financial, tax or similar matters.