Helping You Withdraw Wisely
Your child has chosen their post-secondary program and is getting ready to graduate high school. It’s important that you understand how to withdraw your funds wisely and what the tax implications are.
Let’s explore some tips that can save you and your child a lot of money.
Types of Withdrawals
There are a number of ways to access the funds in your RESP. Let’s take a look at your options.
Post-Secondary Education (PSE) Withdrawal
These are your contributions (less any applicable fees), which can be withdrawn tax-free anytime after your child turns 21 or enrolls into a qualifying post-secondary education or training program.
Other Types of Withdrawals
The grant and investment income accumulated in your RESP will be subject to taxation. You can choose whether you want the funds to be released to you or your child. Depending on your needs and circumstance, these withdrawals will either take the form of an Educational Assistance Payment (EAP), Accumulated Income Payment (AIP) or Non-Post-Secondary Education Payment (NPSE) — each of which having their own unique properties.
Educational Assistance Payment (EAP)
An EAP is a withdrawal from your RESP meant to help pay for post-secondary education expenses like tuition, books and transportation. It’s made up of your accumulated grants, investment income and grant income, not your initial contributions.
With EAPs you’re only allowed to withdraw up to $8,000 in the first 13-weeks of studying in a full-time program and $4,000 for each 13 weeks if part-time.
Accumulated Income Payment (AIP)
An AIP is used when your child is not currently enrolled in a post-secondary program. This form of withdrawal should only be considered if your child does not plan on pursuing a post-secondary education before the end of their RESP’s 35 year lifetime. In other words, your child isn’t going to school and you want to take the income earned out of the RESP.
You can only receive an AIP as a Canadian resident if:
- You’ve held your RESP for at least 10 years
- Your child is at least 21 old
- Your child is not eligible for an Educational Assistance Payment (EAP)
- Your plan has existed for 35 years
- All of the beneficiaries are deceased
Non-Post-Secondary Education Withdrawal (NPSE)
If you choose to withdraw your contributions before your child enrols in post-secondary school, the government will reclaim any grant money they contributed to your RESP as a result of that money being withdrawn. If you withdraw everything, they’ll take all of your grants back and your RESP may be closed.
The Smart Way to Withdraw
When it comes to withdrawing funds from your RESP, there’s a right way and a wrong way to do it. These withdrawal tips can save you and your child a lot of money.
- Withdraw EAPs first, especially in your first few years of school.
- Don’t withdraw contributions before enrolment
- When withdrawing for non-educational purposes, move RESP income to another child’s RESP or your RRSP.
RESPs and Taxes
It’s important to understand how and when withdrawals from your RESP are taxed.
When in the withdrawal stage, your contributions can be withdrawn tax-free. However, contributions are not tax-deductible, meaning they don’t count towards lessening your income tax like an RRSP. When your child reaches post-secondary school, your grants, investment income and grant income will be taxed at your child’s tax rate when withdrawn, often meaning you’ll pay little-to-nothing in taxes.
It’s also important to remember that if you need or choose to withdraw funds from your RESP before your child goes to post-secondary education — or if they don’t go to school at all — there are tax implications. You can withdraw your contributions without being taxed, but if you withdraw your investment income as an accumulated income payment you will be taxed, and the government may claw back the grants they gave you.
Frequently Asked Questions
Create your tomorrow
You and your child are moving forwards together. Every step gets you closer to everything you hope for and everything they can be. It’s a destination where needs and dreams align, supported by your plans for a post-secondary education. We’re committed to your success and want to show you how.