No, you can’t use RESP money to purchase a home. Registered Education Savings Plans (RESPs) are strictly designed to fund education expenses. All investment earnings and government grants inside the plan, which are withdrawn as educational assistance payments (EAPs), must be used for school-related costs, not a down payment or a mortgage.
You can withdraw your original contributions at any time, and for any purpose. But, doing so when your student is not enrolled in a post-secondary education program can trigger grant clawbacks and limit their future savings benefits.
An RESP is one of the most popular education savings tools for Canadian families and has many benefits. It has two types of withdrawal categories:
- Contributions (capital): The money you deposit into the account. Because it’s already taxed, you can withdraw the funds tax-free.
- Education assistance payments: This includes government grant money like the Canada Education Savings Grant (CESG) and your investment growth. These are taxable in the hands of the student and can only be used when your child is enrolled in a qualified post-secondary program.
EAPs can cover tuition, textbooks, mandatory fees, and even reasonable living expenses, such as rent or residence, while your child is studying. If your child does not pursue a post-secondary education, you have options: you can change the account beneficiary, transfer funds to your registered retirement savings plan (RRSP) if you have contribution room, or close the account and withdraw your funds through an accumulated income payment (AIP), which will be taxed and incur penalties.
RESP and Housing rules
- Not allowed: Using EAPs for a house purchase, down payment, or mortgage.
- Allowed while enrolled: Rent/residence, and other reasonable living costs.
- Contributions vs. EAPs: Capital can be withdrawn at any time (early withdrawals may reduce your grants and your RESP contribution room); EAPs require proof of enrolment.
- If not attending school: Transfer to another beneficiary, cash out via AIP, or transfer to RRSP. (tax implications may apply)
- Better savings for house: Use other accounts for home goals, keep RESP strictly for your child’s post-secondary education.
What a Registered Education Savings Plan (RESP) is for (and what it isn’t)
RESPs were created to help Canadian families save for rising post-secondary education costs. Its most notable benefit is government support through the Canada Education Savings Grant (CESG), Canada Learning Bond (CLB), and tax-deferred investment growth.
Here’s how withdrawals work:
- Contributions: Your deposits are withdrawn tax-free.
- EAPs: Grants and investment earnings are taxable in the hands of the student while they are enrolled.
EAPs can be used for a wide range of study-related costs, including tuition, fees, books, laptops, and living expenses like rent or residence accommodations. Buying a home or making a down payment on a property is not eligible.
Using Contributions vs. Educational Assistance Payments (EAPs)
When choosing what RESP money you want to withdraw from your RESP, you’ll have two categories of funds to choose from:
Contributions
- Can be withdrawn from the RESP at any time, for any reason.
- Withdrawals are non-taxable.
- If you decide to withdraw capital when your kids are not enrolled in a qualifying university, college, or another educational institution, you will have to repay your grants to the government and lose the RESP contribution room.
EAPs (grants and earnings)
1. Only accessible when your kids are enrolled in a qualifying program.
2. Must be used for education-related expenses.
3. Cannot be used for a home purchase or down payment.
If the student isn’t going to school
Life plans change. If your child does not pursue a post-secondary education, families will have options before using their RESP money for non-education goals.
1. Leave the RESP open
RESP accounts can remain open for up to 35 years, giving your child plenty of time to change their mind.
2. Change the beneficiary
You can name another child as the beneficiary of the RESP if they meet eligibility requirements.
3. Use funds for another child
If you have a family RESP, you can use funds for another sibling in the plan. Keep in mind that the maximum $7,200 CESG limit per beneficiary will still apply.
4. Accumulated income payment (AIP)
If no one uses the RESP, you can close your account. Earnings will be subject to the marginal tax rate of your province, plus an additional 20%. Your contributions can be withdrawn tax-free, but grants will be returned to the government. If you have a contribution room in your RRSP, you can transfer up to $50,000 in funds.
Housing needs during school: what’s eligible
RESPs are flexible and can help cover reasonable living expenses while your child is in school. That includes:
- Rent or residence fees.
- Utilities.
- Basic living expenses while they are studying.
To qualify, your RESP provider may ask for:
- Verification of enrolment (VOE) at a designated learning institution.
So, while you can’t use your RESP money to buy a house, you can use it to pay rent or cover other living costs.
Better ways to plan for a home purchase
If one of your long-term goals is home ownership, an RESP is not the right tool. Here’s why:
- RESPs are designed to help families maximize government grants for their child’s education.
- Withdrawing RESP contributions early can minimize grant opportunities.
- EAPs are limited to education expenses.
Instead, consider the following accounts:
- Tax-free first home savings account (FHSA): This savings account is specifically for first-time home buyers in Canada. Contributions are a tax deduction, and withdrawals for a home purchase are tax-free.
- Tax-free savings account (TFSA): These accounts are great because they can be used to save for numerous goals, including homes.
- RRSP for home buyer’s plan (HBP): Allows eligible withdrawals for down payments, which can then be repaid over time.
To maximize both savings goals, contribute $2,500 annually to your RESP to qualify for the total $500 in CESG each year*, while also saving for a house separately.
Step-by-step: Withdrawing the right way
If you’re thinking of withdrawing RESP savings, here’s what you need to do:
1. Confirm enrolment status: withdrawals require enrolment verification.
2. Decide what funds you’re using: Contributions are flexible, while EAPs are taxable. Make sure you are within withdrawal limits to avoid penalties.
3. Submit your paperwork: Your provider will ask for a VOE.
FAQs
Footnotes
* Grants are subject to eligibility.
Embark is Canada’s education savings and planning company. The organization aims to help families and students along their post-secondary journeys, giving them innovative tools and advice to take hold of their bright futures and succeed.
