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When the RESP beneficiary (student) is ready to go to school, the subscriber (owner of RESP account) needs to start withdrawing money from the RESP account. To withdraw money you have to provide some proof to your resp provider that the resp beneficiary (child) is going to an approved post-secondary school. You don’t have to show receipts for specific purchases.
Two types of money in the RESP account
In your RESP account, there are two different types of money: contributions and accumulated income.
- The contribution amount is the sum of all the contributions that you made to the account over the years.
- The accumulated income is made up of grants, capital gains, interest, dividends earned in the account.Any money that is not a contribution is considered to be accumulated income.
This distinction is important because the taxation of withdrawals from the contribution portion of the account is different than withdrawals from the accumulated income portion.
- Contribution withdrawals are not taxed.
- EAP (educational assistance payments) which are withdrawals of accumulated income, are taxed as income at the hands of the student.
The good news is that students have the personal exemption, as well as tuition tax credits which helps lower their tax bill. Obviously income earned during summer jobs or on co-op work terms will affect their taxes as well.Another bit of good news is that you can tell your financial institution if you are with drawing contributions or EAP (or both) so you can manage the taxes to some degree.
Please note there is no withholding tax on any kinds of RESP withdrawals, so if the student ends up in a taxable situation, they will have to pay the taxes at tax filing time.
A withdrawal limitation
First – one withdrawal rule to get out of the way – you are only allowed to withdraw $5,000 of accumulated income in the first 13 weeks. After 13 weeks, you can withdraw as much accumulated income (via EAP) as you wish. There are no limits to withdrawals from the contribution portion as long as the child is attending school.
Basic RESP withdrawal strategy
When planning the withdrawals, try to withdraw as much accumulated income money as you can tax free.For example when the student first starts school, they will have just completed a short summer (two months) so they probably won’t have much income for the year. That might be a good time to maximize payments from the accumulated income portion of the account (EAP).
On the other hand, if the student is in a co-op program and has two work terms in one year and only one school term, that might be a good year to take out contributions rather than accumulated income.
You don’t want to end up with accumulated income in the RESP account if the child is no longer going to school.
What if your child doesn’t go to school?
What happens if Junior decides that school is not for him? You have to collapse the plan and pay a pile of tax on it.
First of all you have lots of time to collapse the plan so don’t do it right away. It’s always possible that your child will give up on their pro hockey or musician career and will need the money for schooling later on. You can keep the account open for 35 years after the year in which the account was opened.
If you do collapse the plan, the contributions are tax free, anything else (accumulated income) is added to the subscriber’s gross income for taxation purposes.And on top of that, the accumulated income is charged a tax of 20%.
If you are retired or have any way to reduce your income in the year you collapse a resp plan, do it to save taxes.
What if the child does more than one session at school (ie multiple degrees)?
You are allowed to use the RESP for one degree and then keep some money in the account for future education. The only limit is the 35 year limit previously mentioned. Be warned that it’s not a bad idea to take out all the RESP money during the first degree so that there are minimal taxes and no penalties. If you save money in the RESP account for future degrees and the child doesn’t end up using the money, there will be increased taxes and penalties.
More RESP information
8 Things you need to know about withdrawing money from your RESP account. Lays out the details of how to actually withdraw the money.
How to withdraw excess money from your RESP account. Some strategies for withdrawing extra RESP money without penalty. This applies if the student started school and quit early or ended up with extra money.
How to avoid RESP withdrawal penalties if the child doesn’t go to school. If you child ends up not using the RESP at all – here are some ideas to avoid penalties and taxes.
More RESP information – Comprehensive list of RESP articles on this site.
Want to learn more about RESPs? Buy The Book:
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The RESP Book: The Simple Guide to Registered Education Savings Plans Everything you need to know about RESPs.  |
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Mike – you’re the first person to whom I turn when a question involves RESPs.
I was reading a KPMG Tax Planning book and it mentioned the $5,000 withdrawal limit during the first 13 weeks of attendance. That concerned me because Scotia iTrade made yet another one if it’s oh so many blunders.
It sent my wife two cheques for her daughter’s use – a $5,000 cheque followed by a $1,000 cheque. It listed the first as being sourced from EAP and the second and smaller cheque as coming from Capital.
Are we still onside? Will this total a $5,000 addition to her daughter’s income? Or will it be $6,000?
Thank you.
Hi CF. Yes, Scotia has it right – $5,000 from the non-contribution portion (EAP) and $1,000 from the contribution portion. Only the EAP ($5,000 chq) is taxable income.
Hi,
How much EAP to take out of the RESP without affecting student’s OSAP negatively?
The student has EAP only without any other income in one year.
Thanks,
Spring
Hi there,
What if I am in my last semester of studies and forgot to use my RESPs throughout all of university. Would I be able to claim it all in my last semester?
Hi Mike, in the case of a separation/divorce:
1) Can there be only one parent’s name as RESP subscriber?
2) If only one subscriber parent is named, can the subscriber withdraw money for their own use at any time? Or can funds only be withdrawn with proof of enrollment or when kids hit a minimum age (such as 18).
3) In cases that the kids don’t use the funds for a post-secondary education or training, does the subscriber get the proceeds on collapse even if a separation/divorce agreement states that the liquidation shall be split evenly among both parents?
Thanks in advance for any clarification you can provide.
@Mitch – Read this article http://www.moneysmartsblog.com/how-to-withdraw-excess-money-from-your-resp/
@Steven
1) Yes.
2) Yes (to the first sentence).
3) If the subscriber collapses the account the money will get paid out to the subscriber.
What happens when a RESP was opened for a child, but that child has disabilities and will not be attending University. Can it be switched to a RDSP?
When I turn 18, can I withdraw all my RESP from my bank account? Or will my parents still be in control of the money?
@Savannah – http://www.moneysmartsblog.com/withdrawing-money-resp-account/
Answer To Spring:
The formulas for how much money to take out from RESP, without affecting OSAP are rather complicated . I have found a document, unfortunately I can not send a link to it. Search on Google for “2007-2008 OSAP Manual” and it will be a pdf file . Unfortunately the government seems to hide the 2011-2012 edition. In a nutshell if your incomes are low, the EAP given to the child does not affect the OSAP till around $2500 a year assuming the child has no other income or grants. Please be informed (make your own inquiries for this) that the principal part of RESP that you withdraw is added to your income for the child’s OSAP application purposes (line 850 of the application, see the footnote 33) (I called the ministry and that is what they told me).
However there is another rule if the parents income is large enough for contributing to the child’s education. In this case the RESP EAP given to the child is compared with the calculated parent’s contribution to the child’s education, according to the OSAP rules. If the RESP EAP is lower, it is not taken into consideration for OSAP calculation. Unfortunately the rule is explained in burocratic english, and there are no examples in the manual to let you understand it..I found no references to this rule on the Ministry website.
WARNING: please be aware that the OSAP aid estimator on the ministry website does not do a proper calculation for RESP withdrawals…Also it does not tell you the traps for income calculation, like how your RRSP contributions or TFSA withdrawals will reduce your child’s OSAP or even the non repayable grants!
Hello Mike,
I have a family RESP for my 3 children.
I have withdrawn enough income so that one child has reached the $7,200 grant withdrawal limit (my investments did OK).
Since the plan still contains both grant money and non-grant income, can I still take out money for this child without having to return grant money to the government.
What I have read so far indicates that some calculation takes place to break up the income withdrawal into grant and non-grant amounts. For this child, the additional grant money would put him over the $7,2000 limit and would be clawed back by the government.
I am with RBC, can I specify that only non-grant income should be withdrawn ?
Thanks
Jean123
Hi Jean – No, at this point if you want to withdraw more money for that child it will have to be from the contribution amount or you will lose the grant portion.
I have a question related to withdrawal of Principal from RESP. I have a family plan and my oldest child is going to U of X in September, so she will qualify for EAP. That allows me to withdraw my principal with no penalty.
?
It seems that I do not want to make an EAP RESP withdrawal for him, because he would loose about 40% of it in OSAP grants. Can I still withdraw my principal even though I did not make an EAP payment as long as she qualifies, or I do have to make an EAP payment first (maybe $1
You don’t have to make an EAP payment.
I was wondering what I need to to in regards to the 50% of the tuition I gave to my ex for my sons education. My ex paid the college in full for the year for my son and I paid her half of that. I got the money transfered out of an resp account then gave her a personal cheque for the 50%. I am now doing my taxes and it is asking me if I contributed to education. I stated “yes” and stated the amount. it then asked me for whom and if they are working. I stated yes to this because my son is working part time while attending school. it hten asked me his net and gross income. When my ex found out that i needed this information off of my sons T4 my son was told that he did not have to give that to me and put in my sons head that I am trying to benefit from his tax credits as a student. That is not what I am trying to do but just doing what the tax forms are asking of me. My son now has it in his head that I have no right asking for this. What do I do leave it blank or write a note to the gov”t attached to my taxes stating the situation. Can my ex benefit from my son going to school and stating they paid for the whole year of education? What should I so
@Laura – I would contact an accountant.
I withdrew resps to pay for my son and daughter’s tuition. I just did their taxes and forgot to include the eap portions in their taxes. However, the mostly mutual funds that were in these investments mostly lost money. Should I resubmit?
My son is a full time student and received a T4A for, I assume, AIP of his RESP. He is still my dependant and I claim his tuition (T2202A) on my tax return. Do I also have to include his T4A income on my tax return or can I file a tax return for him just for the T4A?
Pia – I can’t give tax advice however if the son is going to school it should have been an EAP not an AIP.
Any EAP income has to be added to the students income – not yours.
hie……
is it possiible if i withdraw some amount of money from my daughter’s resp, which i am the single subsciber… she is just a 7yr. and i will be continuing her resp.
Hi there, you have some really great information. There is one thing I am wondering about. A potential FP advised me to withdraw my child’s RESP as cash (from a different FP) because it was in a high risk mutual fund and has dropped several thousand dollars in just over a year…he said that the government would not claw back any of it’s grants, etc because the fund had lost. Is this true? My child needs this money next year…
Hi Mike,
All very good info – thank you. Can’t seem to find the answer to this question though: we have a family plan for our 2 sons – allocated 50/50. Are the contributions tracked per beneficiary and hence limited upon withdrawal to what we put in for each of them, or can we decide how much of the contribution portion will go to which son? (One son has dropped out of high-school, the other is aiming for university. Can we use the contributions we put in for son # 1 as eventual payments for son # 2? I understand that the grant portion for son # 1 will be taken back by the government but what happens to the contribution portion?)
Thanks,
Anita
Hi Anita.
There are no rules or limits regarding what you do to the contribution amount.
You can pay it all to one or more of the beneficiaries or keep it all yourself.
I have a family plan for my 2 sons. I contributed around 60k total. This year my oldest son is going to a university. I plan to withdraw EAP 5k for the first 13 weeks and another 2.2k later. I want to take 50k out from my capital, will the government take away the grant because I took out too much capital?
Kira – no they won’t.
I have a family plan for my three children. The oldest is 18 and has just started university. I can fairly easily calculate the amounts of grant money that each child has received from my records, but there is also some interest and some dividends making it harder to calculate.
I believe the oldest childs grants total about $5500. Other income so far or in the future, may or may not reach $7200. Can I or should I still withdraw $7200 as EAP?
I understand that the distinction between contributions and non-contributions is important. Unfortunately, some of the investments have not performed well, so the original contribution amounts have decreased somewhat. If total value minus grants and income is less than contributions, how do you know what is taxable and what is not?
Thank you.
Hi,
I have a daughter attending a highschool in Alberta, we reside in BC. She went away to boost up her classes and get the courses she needs to get into a good university. Can I withdraw RESPs now to help her through her last year, away from home, at highschool to prepare for university?
She is 17 and will be 18 in May 2013
@Milane – The rules are very specific about RESPs being used for post-secondary education. High school just won’t qualify regardless of how many years in attendance and living arrangements.
One idea might be to borrow money to help her now and then pay the loan off next year when she is eligible for RESP withdrawals.
This is the last year she can get RESP grants so make sure you maximize your contribution this year if possible.
Hi Mike….
I was wondering….. If a student has an RESP set up and the student will be graduating at the age of 17, the student will be going to university full time in Sep 2013, should the student be using their RESP funds first before applying for student loans?
Is there any age restriction that can be applied so the student can not use it until the age of 21, even thought he/she will be attending university full time starting the age of 17?
If so, how does this afftect the student from getting a student loan, knowing he/she has this fund available to them? Please advise. Thanks!
Hi Sue.
In my opinion, the RESP should be completely depleted before using student loans. I don’t know why anyone would want to borrow money if they have cash in their RESP account.
There is no minimum age for using RESP funds for full time study.
I’m not too clear on the various student loan guidelines – it’s my impression that RESP withdrawals will affect loan eligibility, but not sure about the presence of RESP funds. This varies by province so you will have to check with your provincial student loan office.
This comment has some interesting info about studen loan forgiveness. I haven’t research this myself, so I can’t vouch for the accuracy. http://www.moneysmartsblog.com/resp-keeping-it-all-in-perspective/#comment-95131
A quick question. If my daughter is living off campus and paying rent, can the RESP money be used towards those payments.
Thanks for your help with this
@Jeff – Yes. http://www.moneysmartsblog.com/withdrawing-money-resp-account/
Hi
I want a withdrawal my daughter’s resp before maturity date. can you give me information about resp withdrawal ?
Hi Mike,
I am filing my taxes for 2012, however I noticed that my statement for my RESP accounts for 2 semesters and my post secondary institution only accounts for 1 semester. This has offset my return and my income appears much higher than it suppose to be and I now owe the government. Do you have any suggestions how I can fix this?
Hi there, my parents put away money in an RESP fund and I was just wondering if this money can be put towards living off campus as well as my tuition and text books?
Thank you,
Morgan
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