RESP Withdrawal Rules and Strategies For 2014

by Mike Holman

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.

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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.

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{ 195 comments… read them below or add one }

51 concerned

Hi:
My daughter’s relatives have a $20,000 RESP and she will be attending university in the fall. I’m familiar with the $5,000 restriction in the first semester. However, can the contributors restrict the amount of money going to her from the RESP? Can they ask the provider to allocate only $2,000 per year to her on the hope that they will recoup some of the losses from the recent stock market collapse?

I wasn’t familiar with this rule and it seems a bit strange.

Thanks!

52 CanadianInvestor

concerned, yes you can ask that only $2000 be withdrawn by filling in that amount on the withdrawal request. There is no obligation to use any of the funds when a student is in post-secondary studies.

Furthermore, if tax is an issue, once the student is enrolled in a qualifying program like a university, the $2000 could be split between withdrawal of contributions, which are totally tax-free and an Education Assistance Payment (EAP) which is taxed in the hands of the student. If there are losses in the RESP, whereby the current market value of the RESP investments is less than the sum of the contributions and the government education grants (CESG), then the EAP will consist only of CESG money, which is good because using it for education is necessary. If grant money is not used for education it must be returned to the government. It cannot be taken out as AIP, for example.

The RESP provider is obliged to keep track of all amounts – contributions, grants and earnings – so you can ask what the balance is of each one at any time.

btw, AIP is never received by the student. AIP is what happens when the earnings cannot be used by a student. AIP goes only to a subscriber. AIP cannot be withdrawn at any time. There are restrictions, like the fact that the RESP must have existed for ten years before an AIP can be made (which may be why the mutual fund company Doug talked about in an earlier comment refused to allow earnings to be withdrawn) see http://www.hrsdc.gc.ca/eng/learning/education_savings/publications_resources/promoter/tools/guide/033.shtml#a

53 Craig

Is there a way I can withdraw money from my resp for non educational purposes? I thought you could but with a huge tax to pay..?

Thanks

54 Wilson Lam

I have a question, Can the contributor withdraw all RESP amount in the account without the student consent? Since thats what happened to my friend, she wanted to use the money in her RESP to pay for her (university) school tutions and books but when she access the account the account is emptied by her mom.

55 Mike

Hi Wilson – an RESP account is under the full control of the subscriber (person who opened the account) at all times. So, yes your friends mom is entitled to do whatever she wants with the resp including spending it on herself.

56 Randy

Hi, I was wondering what is meant exactly by ‘approved post-secondary school’. I might go back to EU in the next 10 years, so i wasn’t sure what’s needed as proof of education to be able to withdraw including the grant money. I talked to a childrens education fund sales person and he mentioned that it could be and post-secondary school/university, even outside of canada, all that’s needed is a not from the institution that proves that the kid is enrolled.
Is this true?

57 Mike

Hi Randy, if your child ends up going to school outside of Canada then they can still use the money from an RESP. However they can’t receive any grants if they are not living in Canada.

I would strongly suggest that you don’t buy an resp from a sales person – they are not a good deal. Just set one up at your bank.

58 Randy

Thanks a lot, Mike! Just so i get this right, the gov will take back the grants (matched contributions made by the gov) if the kid studies outside of Canada?
Also, I’m looking into setting up a TD mutual fund RESP account that i’ll then convert into a TD e-series funds account as is described in another blog entry in this series (http://www.moneysmartsblog.com/2007/11/23/resp-how-to-get-started/). Hopefully there’ll be no annual fee. this sounds a bit complicated though, is it to avoid the annual fees?
Most banks have a 50$ annual fee for RESP accounts. For example the TD Waterhouse RESP account (their other RESP product) has a 50$ annual fee if you have below $25K in the account.

59 Priscilla

I had a quick question. I have an RESP for my daughter(she is only 4) and I wanted to take some funds from the account. If this possible? if it is What is the tax implication? Is there a limit as to what I can take? How fast would the money be avaiable?

Thanks

60 Mike

Priscilla – you should check with your resp provider but I would suggest not taking the money out.

You are going to have some tax implications – you are allowed to take out contributions without penalty but I think that is only true if the child has started school.

In your case I suspect that any contributions you remove will mean losing the grant associated with it and you’ll have to pay tax on any earnings. Depending on the provider they might not support a partial withdrawal.

Short answer is yes there will be problems and you need to contact the financial institution where you have the account. Needless to say you should try to get the money from elsewhere.

61 Jay

Our child has a (roughly) $25K RESP and will begin attending post-secondary in September.

From what I’ve read, we don’t have to provide receipts for expenses, we just have to provide proof of enrolment to begin removing funds from the RESP.

Now my questions…
1) After the first $5K is withdrawn at the beginning of September, are there any limits to the amount that can be removed on a yearly basis? (I *think* there isn’t, and the only ‘limit’ would be choosing to keep the withdrawals below the threshold where income tax would have to be paid.)
2) The reason we’re asking (1) is it *seems* like it would be a good idea to take out any *extra* cash and divert it into a TFSA (Tax Free Savings Account). Do you know if there are any problems with doing that?

Thanks very much.

62 RH

I am in a situation whereby the value of the RESP A/C is less than the Contribution + CSEG. In other words, I have lost due to bad investments. I am assuming the only part that will be taxed in the student’s hand is the CSEG. Please confirm. Thanks

63 Four Pillars

RH, as far as I know you can take your original contribution amount out tax free. If that amount is more than the account value then no taxes will have to be paid.

If the account value is higher than the contribution amount then only the part in excess of the contribution amount will be taxable (for the student).

64 Nicole

I have a situation where I am a beneficiary of my father’s RESP and he has withdrawn large amounts of money in my name but decided to keep the money for himself. I am therefore being taxed on it and would like to remove myself as a beneficiary so that it does not happen in the future. Is this a possible conclusion? what do you suggest I do?

65 Four Pillars

Nicole, that is a tough situation. I’m not sure how you can get yourself removed as a beneficiary of the account or if you can.

The only course of action I can think of off hand is to report your father to the CRA for tax evasion.

66 Steve

We received our sons T4A RESP slip of $5,800.00 and it was 100% earnings and grant. He made over $15,000 working and will need to pay taxes on the total amount. We have asked the investment company to amend the T4A slip to 100% contribution. We will use the taxable portion for our 2nd son who will not have the same summer job income. The investment company is advising us that once this slip is issued, it can not be changed. I find this incredibly difficult to believe. Can you please let us know.

67 Four Pillars

Steve, I think your investment company is lazy. :)

As far as I know, there isn’t any tax slip that can’t be reissued – how else would errors get fixed?

I would try calling them again.

68 Theresa

I think you might have to stipulate what you are withdrawing upon withdrawal. i.e. Education assistance or contribution.

69 Shelley

My son is the beneficiary of an RESP. He is attending a 4 year college outside of Canada and want to attend a 6 week summer school course as part of his program. What constitutes the “program”: the 4 year bachelors degree program or does each class taken have to qualify by being 13 weeks?

70 Mike

Hi Shelley, the 13 week rule is for something different. 3 weeks is the minimum course length for RESP eligibility.

Here is some more info:

RESPs are intended to be used for valid post-secondary education. It is important to note that the rules are fairly lenient, it doesn’t have to be a college or university education and it doesn’t have to be full time.

Here are the basic criteria as well as a resource to verify if the school you are planning to attend is eligible.

10 hours per week or more
At least 3 consecutive weeks in length
Enrolled at an eligible post-secondary institution
Correspondence and trade programs are eligible
Student cannot be employed full-time

To confirm that an educational institution qualifies, call the General Enquiries telephone service at 1-800-959-8281.

The educational facility does not have to be in Canada. While the subscriber and beneficiary must be Canadian residents in order to qualify for RESP grants, it is perfectly ok for the student to choose to study abroad.

71 Greg

Facts
I/we have 2 sons – son A (now 20 years old) and son B (now 18 years old) – both recognized beneficiaries in each RESP plan.
We made contributions of $2,000/son to three separate RESP plans for our sons (not very efficient, but convenient at the time) from 1998 to 2001. Thus plan #1 had $4,000/son, plan#2 had $2000/son, and plan#3 had $4000/son. No further contributions were made after 2001.
Son A entered university in September 2007, and a withdrawl was made from plan#1 of $6,500 ($4,000 of contribution and $2,500 of EAP) and plan#2 of $3,100 ($2000 of contribution, and $1,100 of EAP). These values represent approximately half of the accumulated value in each of plans #1 and #2. Also, plans #1 and #2 were collapse and the remaining values tranfered plan #3.
The financial institution administering the plans issued two T4As to son A in 2007 in the amount of $5,900 and $2,200 representing the entire EAP in each of the plans even though the forms used to make the withdrawls were specific as to the nature of the amounts withdrawn. Unfortunately, I was not made aware of the withdrawls (done by my wife) and the 2007 T4As (sent to my son who didn’t open his mail) until last week (no excuse, and a definite family communication problem!).
Question #1 – does it make sense that the administering financial institution would issue T4As to son A for the entire AEP for plan#1 and #2, given that withdrawls were made and the remaining balances (relating to son B) were transfered to plan #3?
Question #2 – can I refile son A’s 2007 tax return including $3,600 ($2,500 and $1,100) of EAP, and include the remaining EAP of plan #3 in the 2009 tax returns of sons A and B based on the identified portions for 2009? (all funds were withdrawn from plan#3 as both sons are at university in 2009) and son B’s income is well below the personal exemption limit?
Question#3 – assuming the answer to Question #2 is yes, do I need to get the administering financial instituion to reisssue the two 2007 T4s to son A based on the withdrawls as well as the recently issued 2009 T4A to son A (no recogntion of son B EAP made)?
Your assistance/thoughts/guidance would be very much appreciated.
Thank you.

72 Four Pillars

I’m going to start charging for this stuff – it took me half an hour just understand the questions. :)

Question 1 – The T4A slips were based on the withdrawals completed – the fact that the amounts were transferred out later on is irrelevant. Unfortunately it looks like there was a clerical error since you mention the proper contribution/AI split was indicated on the withdrawal form. No, it doesn’t make sense, but mistakes happen.

Question #2 – Yes, you can always refile any portion of a previous tax return using a T1ADJ form . I’m mailing a couple of those off myself today coincidentally http://www.moneysmartsblog.com/2010/02/27/errors-old-tax-return-claim-kids-deduction/

The problem is (this will answer Q2 and Q3) that yes, you need the original financial company to reissue the T4A slips. Normally this wouldn’t be a problem however in this case the account has been transferred to another institution.
When the money got transferred, so did all the information regarding contribution history, grant history, withdrawals of contributions, withdrawals of accumulated income etc. So the original company can’t just change the results of that original withdrawal without changing the info sent to the second company.

I think in theory you could probably get this corrected, but you would need both companies to redo the history of the accounts to reflect the fact that the ratio of contributions and accumulated income are different than was communicated in the original transfer. This might take a bit of work.

My question to you is – is it worthwhile to fix this? Son A has T4As totalling $8,100 for 2007. I think the personal tax exemption was a bit higher than that amount for 2007 and he should have 1 semester’s worth of tuition credits/education credits to offset. Did he have a high paying job that summer or a part time job that will cause some taxes to be owing?

Right now the marginal tax rate up to $37k in income (2010 rules) is only 20% so I would look at how much tax is owing for 2007 before trying to fix it.

73 Alkesh

My daughter will be starting University in September. I read above about the withdrawl restrictions for the first 13 weeks. After that is the withdrawl schedule completely flexible ie can we take out as much a we want, whenever we want as long as we have proof of attendance?

74 Four Pillars

Alkesh – that is correct.

The government regulations do mention that the financial institution is “supposed” to make sure that the amounts are reasonable. If they give you any hassle then just keep asking or spread out the withdrawals a bit.

75 Jim

Re the 13 week rule. If you take out $5,000 in the first week or two of school, there is still time left before the end of the year to remove any additional funds you might need and to put income into that tax year if the beneficiary has low income. Remember they’ll also have low school related deductions (tuition, living allowance and miscellaneous).

Comments are correct that you don’t need to provide receipts. However, if you are withdrawing more than $20,000 at once, you’ll probably need to provide a list of use of proceeds. We have not experienced this rule in the past when we’ve spread the withdrawals out over the year but did on a lrage withdrawal in January. We’ll see in the fall whether we have to provide further information but we’ll keep future withdrawals below the $20,000 amount.

We’re in the happy situation now where the second beneficiary is in his last two years and we have more money left in the RESP than we’ll require for his education. We’ll be testing out all the ways to withdraw money including withdrawing the original contributions before the plan is wound up, transferring funds to my RRSP (I need to stop contributing to build contribution room) and perhaps, in the end, paying some of the penalty tax.

I have nothing but good things to say about RESPs. For every $1 I contributed, the kids have already withdrawn $6 and there is still $5 left in the fund. If only I’d done that well with the investments on all my other accounts.

76 Mat

I think that an overlooked positive feature of our tax system is the ability to annually transfer the excess unused tuition credits up to $5,000 per student federally and more provincially to the RESP contributor. My granddaughters never make any significant taxable income and there is lots of accumulated unused tuition credit [refer to Sched. 11]. Be sure that they sign the back of the T2202A because you will be audited.

77 Karen

I think RESP’s are the way to go, but unfortunately depending on what institution are with. I am dealing with National Bank Brokerage. I have had nothing but problems with dealing with them. It is my money not theirs. After reading all the comments in this blog, I am so thrilled to know that I have been right along as well as my advisor, not the brokerage division (but branch). I can’t wait for Monday!

78 Mat

If you have several children in a Family RESP, be aware of the obscure statement footnote that states that “each beneficiary may use a maximum of $7,200 CES Grant for educational purposes. The beneficiary must repay any CES Grant amount received in excess of this limit.” Neither your RESP Administrator nor your financial advisor should be expected to notice that you have reached this limit in your enthusiasm to tap taxable funds as early as possible. The RESP funds are a single pool in a Family Plan and it is easy to exceed this $7,200 limit on the first student. This can cause a transaction reversal nightmare and is a learning experience that you will never want to repeat.

79 Admin

Great point Matt, the $7,200 grant maximum always applies. In your case you have to keep track of how much grant money is being paid out.

80 Chris

I have a son just entering university. I have a fairly large RESP set up for my son, and the value of the contibutions is much lower than the actual amount in the RESP due to the stocks I choose to invest in. Can I identify these losses as capital gains losses if I remove them from the RESP?

81 Mike

Chris – no, you can’t.

82 dk

Can the student cash in the RESP once they’ve completed the 4 years of University in order to repay their OSAP loan? If yes, are there any special conditions in regards to the OSAP application or taxes?

83 Dillon

Hi,
I am 16 years old and going to be attending cegep this fall. My father has saved some money in a RESP account (in which I am the beneficier) and I was wondering how can I “use” the money without being charged the taxes and without losing the accumulated income. Do I need to request a special reciept from my school?
Thanks a lot!

84 Dianne

We have 2 sons that attended university, for one year only, a few years ago. We were advised, and agreed, to leave the money in the RESP fund to let the fund grow but we should have at least pulled out the grant portion. The boys paid for their first year of school with their own funds. Is there any way they can still receive the grant portion for the year that they attended school? We we led to believe there was a deadline to submit a claim in the school year. I don’t know if they will be attending school as they are working in the family business. Their sister, however is beginning university in the fall and we will be making a withdrawl for her education.

85 Mike

Dianne – you can make the withdrawals up to 6 months after the student stops going to school or finishes the school year. This doesn’t sound like the case with your sons.

You definitely should have withdrawn some of the accumulated income (non-contribution portion of the RESP account). The advice you received was not very good.

You can transfer the RESP money to the sibling, but if the grants total more than $7,200 then they will be returned to the government.

86 Melanie

Once the beneficiary of the RESP starts making withdrawals, can contributions continue to be made into that account?

87 Mike

@Melanie. Yes.

88 HeidiPG

I have a 17 yr old son who is currently entering grade 11 (behind about 1 semester due to an exchange he completed in 2008). We have about $32000+ in an RESP ready for his eduction, but in 2008 he also became the beneficiary of a testamentary trust from my mom’s estate in the range of $90k. This is a discretionary trust until he is 25, but is mainly intended to be used for his education. Because our son has recently been formally diagnosed with some learning problems ( DCD or Developmental Co-ordination Disorder) he will be needing accommodations at college including more time to complete his course program and some technology adaptations. Each year, the amount of RESP AIF to be withdrawn will need to be balanced with the amount of income generated by the trust. Currently we are rolling out the trust’s income as our son has very limited personal income and has not owed tax on the funds rolled out. If we leave the funds inside the trust, the income is taxable without his deductions. This is clearly going to be a juggling act to bringing out the income from both sources and balance it all with the tax deductions available. I have also had to keep good records since I have utilized his trust income to supplement our RESP contributions and need to refund those back to him when we withdraw the principal funds. These contributions have been done with his knowledge and approval. We have also agreed that his dad and I will recapture our original contributions when the RESP is collapsed at the end. This way he gets the acumulated income, the CESG $ and uses up his tax credits as well as utilizing his inheritance to top up his education needs and maybe still have a downpayment on a home with the remaining balance in his mid 20’s. The RESP was a great starting point and the trust is the icing on the cake for his education. Because young teens and men are not so good with handling finances I have been educating him on how I look after these accounts for him. As time passes he will get more responsibility and decision making opportunities, but I will be able to ride herd until he is 25. We are hoping he has developed a good head for personal financial management by then.

89 Debbie

Can funds be withdrawn from an RESP to purchase a car or motorcycle as a mode of transportation to get to & from college?

90 Mike

Debbie, you can spend the money on whatever you want.

91 Doug

Question about the 1st 13 week $5000 limit. I have a daughter starting university in the fall and have been told by my RESP provider that all I can withdraw is a total of $5000. However I understood this limit is only on the accumulated money (as you have stated above) and that the entire sum of contributions could be withdrawn right at the beginning to help cover the 1st year of school. Am I wrong?

92 Mike

Doug, you are correct!

93 Jenny

My father has saved up roughly 10k for me, along with 6k accumulated income. He told me that now that I am attending university in the fall, he will withdraw the money and put it in a savings account in his name.

My concern is this – why in his name? Is this a necessary part of an RESP? I told him I would like it to be in my name, so that I can control my own finances and pay my own tuition cheques, taking responsibility in my own studies. I don’t plan on using it for anything other than tuition. I am in fact a little worried about HIM possibly using it for something other than tuition, or if anything happens to him that nobody can access the account any more and the money is lost. Being only 18, I don’t know much on these matters, though I would like to since it’s a part of growing up and I want to learn to be a responsible adult.
In any case, when I brought up that I would like the account to be in my name so that I can have responsibility, he refused and told me that it’s his money that he saved up and that he’ll decide how it’s spent. When I objected he insisted that he would not use it on anything other than my tuition, but I’m not convinced and if it will only be used on tuition as he says, I don’t understand why he said he can “decide how it’s spent” and why I can’t have access to the account or have it in my name. Is there anything I can do in this situation to have responsibility over the money that is meant for *my* tuition?

94 Mike

Jenny, the money belongs to your father until he gives it to you.

There isn’t anything you can do to take ownership of the money.

95 Marsha

If one was to follow Doug’s lead (previous comment above) and withdraw the full amount of the RESP to cover 1st year expenses, what could be done with the remainder of the money if the value of the RESP exceeded expenses?

Secondly, is there any way to have an RESP signed over to the beneficiary so that it is in his/her name rather than the subscriber’s? (Assuming the subscriber is okay with this).

96 Mike

Marsha – you can do whatever you want with the remainder of the money.

No you can’t sign an RESP account over to the beneficiary.

97 Aleik

Hi. My mother used my RESP funds for my tuition fee in college. I would like to withdraw from my program though and go to school on a later date. I’m planning to get a refund from my school but does that mean I get the RESP we used aswell? I’m sure that I’m going to go back to college a year after i withdrawn. Will there be any penalties regarding my RESP? Please help me!

98 Mike

Aliek – You will need to repay the RESP. I would contact your financial institution to get more details.

99 Evelyn

What is the age limit to deposit into an RESP account. My daughter just turned 17 years old. I am depositing monthly, but does it finish when my daughter turns 18?

100 Money Smarts Blog

Evelyn – I assume you mean – what is the age limit in order to make contributions and receive the RESP grants?

You can make contributions and receive grants right up to the end of the year (December 31) in which your daughter turns 17.

Mike

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