Lisa MacColl is a writer, investor and former compliance consultant in the group retirement and individual wealth management fields. Lisa has written about personal finance for 14 years and currently writes about investing and investment providers for Wealthsimple. Lisa's past work has been published in Canadian Money Saver, Advisor’s Edge, CBC, and CreditCards.ca. She was a nominee for the 2015 Oktoberfest Women of the Year, Professional Category. Lisa holds an M.A. and B.A. from the Wilfrid Laurier University.
There are a number of rules that come with owning an RESP. Many of these rules are specific to the withdrawal of money from an RESP. Here’s what you should know before you attempt to take money for your Registered Education Savings Plan (RESP).
Rules for RESPs
Only the person who set up the account and made contributions can make withdrawals — they're known as the subscriber. The student (called the beneficiary) can't make withdrawals. Withdrawals of contributions made by the Subscriber are called Post-Secondary Education Payments (PSE). They may be sent to either the Subscriber or Beneficiary. Withdrawals of the government grant/bond portion (known as the Education Assistance Payments “EAP”) can only be sent to the Beneficiary.
The subscriber must provide the financial institution who holds the RESP (the “Promoter”) with proof of enrollment confirming the student (beneficiary) is enrolled as either a part- or full-time student in an approved post-secondary institution. Proof can consist of an offer letter, the course confirmation or other information showing student number, term, program name etc.
PSE payments aren't taxable. The student will be taxed on EAP withdrawals. The financial institution will issue a T4A tax form in the student's name for EAP payments only.
Subscriber contributions (PSE) can be withdrawn in any amount. There is a limit of $5000 during the first 13 weeks of schooling for the EAP payments (government portion.)
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Maximum RESP withdrawal
There is a $5000 limit (or $2500 if the student is enrolled part-time) on EAP contributions during the first 13 weeks of schooling. There is no limit on the amount of Subscriber (PSE) contributions that can be withdrawn. Once the 13 weeks has passed, any amount of EAP contributions can be withdrawn.
NOTE: each beneficiary can receive a maximum $7200 in government grant/bond for full-time education, or $3600 for part-time. Anything in excess of that must be paid back to the government. Track the EAP portion carefully, especially if you have a family plan.
If the costs of the program are more than the limit, your financial institution holding the RESP can apply to the Minister of Employment and Social Development for approval to withdraw more. You can get more information here.
RESP withdrawal rules for family plans
There are two types of RESP, single beneficiary and family plan. If you have a family plan, each beneficiary must be:
Connected by blood or adoption to each Subscriber (the person making the contributions).
If the RESP was started after 1998, the person going to school who will benefit from the funds in the RESP (“Beneficiary”) must be less than 21 years of age.
If the RESP is being transferred from one family member to another, the new Beneficiary can be 21 or older, as long as they are connected by blood or adoption to the Subscriber.
There are two types of withdrawal: Subscriber contributions (PSE) and government grants (EAP). There is no limit to PSE payments. There is a maximum of $7200 (or $3600 if part-time) EAP payment per Beneficiary. If you have an RESP account for more than one Beneficiary, track the amounts carefully. Anything over $7200 per beneficiary must be returned to the government.
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RESP withdrawal penalty
If you must collapse the RESP before the funds are depleted because your child doesn’t go on to post-secondary education or withdraws early, you could face hefty fines. The government portions will be returned to the government, and you withdraw your own contributions without penalty. But what about investment earnings? Investments earnings remaining in a RESP after the plan has been collapsed are called an Accumulated Income Payment. (AIP) Those funds must be included as income, will be taxed at your marginal tax rate, plus a penalty of 20%. You can get more information here. If you/your spouse has Registered Retirement Savings Plan (RRSP) room, you can transfer the AIP (up to a maximum of $50,000) to your RRSP on a tax-deferred basis. You can complete the transfer if:
Subscriber is a resident of Canada.
Only one Subscriber can claim the payment.
RESP was open at least 10 years, each Beneficiary is over 21 and not eligible for EAP.
Useful terms to know when navigating RESP accounts
There's a list of RESP terms — almost as long as your arm! If you are trying to navigate information for RESPs you need a cheat sheet of terminology:
Beneficiary: The person for whom the RESP was set up—the student.
Canada Education Savings Grant: The portion the government of Canada contributed to the RESP. There is a lifetime maximum of $7200 per Beneficiary.
Canada Learning Bond (CLB): Contributions made to the RESP by the government of Canada for low-income families. Eligibility is based on the number of children and adjusted income of the primary caregiver. You can get more information here.
Educational Assistance Payments (EAP): Amounts paid from the RESP to the Beneficiary (the student) comprised of the Canada Education Savings Grant, Canada Learning Bond and any provincial matching programs, plus any investment income earned inside the RESP.
Post-Secondary Education Payment (PSE):The contributions the Subscriber made to the RESP.
Post-secondary Institution: You might be wondering what's classed as a post-secondary institution. According to the Government of Canada, this is classified as:
A university, community college, private college, seminary, specialized health care training institute such as massage therapy, chiropractic, naturopathy or applied arts and technology schools that offer post-secondary courses on a full-time basis. Private schools such as Medix, Herzing and the National Ballet School also fall in this category. Distance education programs may also qualify.
Trade schools and other specialized skills institutions that are certified by the Ministry of Employment and Social Development Canada that teaches skills in an occupation such as plumbing, HVAC, welding, truck driver training, esthetics, hairstyling and makeup application. Students develop or upgrade skills. Distance education programs may also qualify. You can see a complete list by province here.
A university, trade school or college outside of Canada that offers either full-time courses of at least 3 weeks in duration, or part-time courses of at least 13 weeks' duration.
Promoter: The financial institution who is administering the RESP.
Qualifying Education Program: A post-secondary level or distance education of at least 3 weeks' duration that requires at least 10 hours of course work per week.
Specified Education Program: A post-secondary education program of at least 3 weeks' duration that requires at least 12 hours per month on course work.
Subscriber: The person making the contributions to an RESP.
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