Deciding when and how to take money out of your child’s Registered Education Savings Plan (RESP) can feel overwhelming. Most parents and guardians want to make sure tuition, rent, and other education expenses are covered, but also don’t want to trigger tax implications or risk losing government grants.
The good news? With a little planning ahead, your RESP withdrawals can be smooth, tax-efficient, and flexible enough to cover everything from textbooks to housing.
This guide will break down what you need to know about making RESP withdrawals, including:
- How to avoid common mistakes.
- Smart RESP strategies to make sure you get the most out of your savings.
Know What You’re Withdrawing: RESP Contributions vs. Educational Assistance Payments (EAPS)
When you take money out of an RESP, it comes from two possible categories:
Your net contributions (Capital)
This is the money you deposited into the account after any fees or other deductions. These funds can be withdrawn tax-free because you’ve already paid tax on this money before investing it into the account.
Educational Assistance Payments (EAPs)
These funds include government grants and any investment earnings you’ve collected over the years. When you withdraw EAPs, this money is considered taxable income and is taxed at the student’s marginal tax rate, not the parents.
Why This Matters
Students typically pay little to no income tax because of their low earnings during the time they are enrolled in a qualifying post-secondary program and due to tuition credits.
Tip: Keep your RESP withdrawals as organized as possible. Always ask your RESP provider for a contribution vs. EAP breakdown when making your withdrawals, so you can maximize savings and reduce tax implications.
Understanding EAP Limits in the First Weeks of Post-Secondary Education Study
EAPs come with rules in terms of how much you can withdraw in the first couple of weeks of your child’s qualifying educational program:
- Full-time students: Full-time students can withdraw up to $8,000 in EAPs during the first 13 consecutive weeks of their enrolment.
- Part-time students: For those in part-time programs, this withdrawal amount is capped at $4,000 every 13 weeks.
After those first 13 weeks, students in full-time programs can take out EAPs, up to the yearly government cap, as long as it’s for education-related expenses, while part-time students must remain under the $4,000 cap every 13 weeks.
Important: If your child takes a break from their post-secondary education program for 12 months or longer, the 13-week EAP cap still applies when they re-enroll.
Build a Year-By-Year Withdrawal Plan
RESP withdrawals work best when you create a year-by-year strategy. Going in without a plan can lead to unused grant money and greater taxes later down the road.
Here’s how you can build a plan that works for your child’s post-secondary education goals:
- Estimate Costs: Estimate the total cost of your child’s tuition, books, living expenses, meals, transit, and other eligible expenses.
- Note education funding: Take note of where the money is coming from, whether it’s your RESP, grant money, scholarships, bursaries, part-time employment, or family assistance.
- Match RESP withdrawals to costs: Use your capital (non-taxable) for larger expenses if your EAP maximums may be exceeded. Use EAP withdrawals strategically once tuition credits are available to offset taxable income throughout your child’s education.
What to Withdraw First (And Why)
The order in which you withdraw money from an RESP matters:
- Early in your child’s post-secondary education journey: In the first term of your child’s university program, consider using EAP first so you can utilize your grants and earnings, which are subject to penalties or being returned should your child not complete school.
- Once EAP is exhausted: After using all EAP available, withdraw your contributions as these are always yours and will be returned tax-free if there is additional left over.
Remember to keep important documents like your child’s proof of enrolment in a qualifying program (such as a T2202 form or an official acceptance letter), along with receipts for education-related expenses.
Monthly, Term-By-Term, or Annual RESP Withdrawal Strategy?
There’s no need to withdraw funds all at once. Ideally, you’ll want to pick a withdrawal schedule that fits your child’s semester budget and applicable taxes:
Monthly RESP Withdrawal Strategy
Withdrawing funds every month is great for expenses like rent and groceries, and can help students budget accordingly.
Per-Term RESP Withdrawals
Per-term RESP withdrawals can be great for covering larger bills such as tuition or residence fees.
Annual Lump Sum Withdrawals
Annual lump sum withdrawals are simple, but they can put you at risk of withdrawing too much in a single tax year.
Special Situations That Affect RESP Fund Withdrawals
Life isn’t always a clear path from first semester to graduation. Here’s how special cases can affect your future RESP withdrawals:
- Co-Ops or internships: Income earned through co-ops or internships can increase your student’s income tax. Aim to withdraw larger EAPs for semesters where your student is strictly on campus.
- International post-secondary education: Most overseas programs qualify for RESP withdrawals. Note that most providers may ask for enrolment proof.
- Distance learning: Online courses will often qualify for EAPs as long as they are offered through a qualifying post-secondary education institution.
Rent and Living Expenses: Using RESP the Right Way
RESP funds aren’t just for tuition; they can be put toward living expenses as well, regardless of whether your child is studying full-time or part-time.
Eligible education costs:
- Rent and utilities.
- Meal plans and groceries.
- Transit passes.
- Books, laptops, specialized software, and other required tools or equipment.
Avoiding Clawbacks and Penalties: RESP Withdrawal Rules & More
RESPs are designed to support post-secondary education, and there are rules to ensure government grants are used appropriately. Understanding these rules can help you avoid unnecessary repayments or penalties:
- Child pauses or stops school: If your child leaves a post-secondary program early, any grants already in the RESP remain in the plan. They are not automatically repaid unless you withdraw funds for purposes other than eligible post-secondary education (NPSE). The grants stay available if your child re-enrolls in another qualifying program.
- Over-contribution penalty: Contributions above the $50,000 lifetime RESP limit are subject to a 1% monthly tax until the excess amount is withdrawn.
- Grant eligibility for younger beneficiaries: Certain grants for 16- and 17-year-olds have special timing rules. Ensure contributions are made on time to maximize available government assistance.
Step-By-Step Withdrawal Process
Here’s how to take RESP money out of your account for your child’s post-secondary educational ventures:
Request proof of enrolment
Request proof of enrolment from your child’s post-secondary school.
Contact your RESP provider
Next, reach out to your RESP provider for guidance on making a withdrawal. They can help you understand how much of your withdrawal would come from contributions versus EAPs (income and grants) and ensure you follow all rules for eligible withdrawals.
Note: Your RESP provider cannot withdraw funds on your behalf — withdrawals must be initiated by the subscriber.
Provide documents
Submit the proof of enrolment documents and any other documents required by your provider.
Confirm payment instructions
Confirm payment instructions with your RESP provider. Most of the time, the money will be directly deposited into your student’s account.
Plan ahead
RESP withdrawals can take a couple of business days to process. So, plan the withdrawal before tuition is due to avoid any late penalties.
Educational Withdrawals: Key Takeaways
- Always withdraw EAPs (grants and earnings) first and then your principal contributions.
- Spread out your withdrawals over multiple years to reduce potential tax liability.
- Always keep your documents organized and ready to go at all times, including enrolment proof, receipts, and provider forms.
- Plan ahead. RESPs reward families who withdraw intentionally, not chaotically.
With the right RESP strategy, you’ll be able to make the most of every dollar saved towards your child’s post-secondary educational program, every grant earned from the government, as well as every tuition credit available. Having a plan will give your child endless opportunities if they want to pursue post-secondary education.
FAQs
When should I withdraw from my RESP?
The best time to withdraw is when your child is enrolled in a qualifying post-secondary education program. Plan your withdrawals around when your child’s tuition, textbooks, and other bills are due for the semester.
How can I withdraw my RESP without paying tax?
Your net contributions can be withdrawn tax-free. Only earnings and government grants are taxable in the student’s hands. Accumulated income payments (AIPs) used for non-educational purposes are also subject to tax penalties.
Can I buy a car with RESP money?
No. RESP funds must be used for eligible post-secondary expenses only.
Can parents take back RESP money?
RESP subscribers can withdraw their net contributions at any time, tax-free. However, their grants must be repaid, and investment income, depending on when contributions are withdrawn, may have tax implications applied to them.
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.
