RESP withdrawal options

by Michael Silver

You’ve diligently saved in an RESP (Registered Education Savings Plan) to fund your child’s education. Now it’s time to withdraw the money – but how exactly does this process work?

When you’re ready to withdraw from your RESP, you’ll first need proof that your child is enrolled in a qualifying post-secondary program. Generally, this program must last at least three consecutive weeks with a minimum of 10 hours per week.

There are two primary ways to withdraw from an RESP. The first is called Educational Assistance Payments (EAP), which includes earnings and government grants. These funds are taxable but are considered income for your child, usually resulting in a lower tax rate. The second type, Post-Secondary Education Payments (PSE), involves the original contributions you’ve made. These contributions can be withdrawn tax-free at any time, provided your child is enrolled in post-secondary education.

Withdrawal limits are structured around timing. During the first 13 weeks (approximately 90 days) of your child’s studies, EAP withdrawals are typically capped at $5,000 for full-time studies and $2,500 for part-time studies. After this initial period, there are no official withdrawal caps; however, the withdrawals should be reasonable and closely related to educational expenses.

If your child decides not to pursue post-secondary education, you still have several options. You can choose to wait, as RESPs remain active for up to 36 years, giving your child ample time to reconsider their educational path. Alternatively, if your RESP is a family plan, you can easily transfer the funds to another child within your family who plans to pursue higher education. Additionally, you retain the option to withdraw your original contributions at any time without tax implications.

Another alternative is an Accumulated Income Payment (AIP). If your RESP has been active for at least 10 years and your child is over 21, you can withdraw the accumulated earnings and grants. Be mindful, though – this withdrawal is subject to your marginal tax rate and an additional 20 per cent penalty unless transferred directly into your RRSP, subject to contribution limits.

Lastly, you can simply cash out the RESP funds directly, paying any applicable taxes and penalties. Typically, this means forfeiting the government grants and paying taxes plus a 20 per cent penalty on accumulated income.

Understanding these withdrawal procedures allows you to effectively manage your RESP, ensuring it aligns with your family’s evolving educational and financial needs.

Michael Silver, B.Comm. (Hons), CFP®, CHS, is Managing Partner at W.P.G. The Wealth Planning Group