It seems like a long time ago that you began to regularly contribute to a Registered Education Savings Plan (RESP) for your child or grandchild and, suddenly, it’s time!
In a month or two, that ‘child’ will be heading off to university or college and the accumulated cash in their RESP will begin to pay off.
You’re far from alone: Canadian families have amassed over $44 billion in savings to help pay for their children’s post-secondary education and 379,120 students had RESP withdrawals for a
total of $3.04 million in 2014.*
You’ll want to get the most from your RESP – and with the right withdrawal strategies you will save on the taxes your student will pay and get the full benefi ts of the Educational Assistance
Payments (EAPs) that consist of the Canada Education Savings Grant (CESG), the Canada Learning Bond (CLB), and the income earned on the money you saved in the RESP**. Here’s how:
Withdraw income before withdrawing contributions. As the subscriber to your student’s plan, you can elect to withdraw the income as an EAP in the hands of your student – and that’s the tax-wise choice because your student’s income is likely to be very low. Avoid withdrawing contributions before your student begins school. Otherwise, you will trigger a repayment of the CESG.
Spread out the EAPs over the expected length of the educational program instead of taking an all-at-once lump sum. This avoids burdening your student with a large taxable income in
the first year and takes advantage of his or her (presumably) lower marginal tax rates over a number of years.
Make the right withdrawals to avoid clawbacks. You may be required to refund some of the CESG money if there is any remaining in your RESP plan after your student completes (or leaves) their postsecondary program. To avoid a potential CESG clawback, withdraw EAPs before contributions.
Be sure you’ll have the money when you need it. Before releasing an EAP, your RESP carrier will require proof of enrolment – so get that documentation to your carrier as early as possible.
Use any leftovers. If there are still contributions remaining in the plan after your student finishes college or university, you can use that money as you wish. Transfer it to another child’s plan or withdraw it for your personal use.
Education is expensive so starting that RESP years ago was a sound fi nancial decision. Your professional advisor can help you make other good decisions that will provide financial stability
for your family and a debt-free education for your children or grandchildren.
*2014 Statistical Review:
At a Glance, a ‘snapshot’ of national program data as of December 31, 2014.
**The Canada Education Savings Grant and Canada Learning Bond (CLB) are provided by the Government of Canada. CLB eligibility depends on family income levels. Some provinces
make education savings grants available to their residents.
