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 }

101 Cheryl

My Ex wants to set up a RESP (Hearitage) for our son that is now 8 years old. I have full custody with his Dad haveing every other weekend. He claims the Hearitage will not let him open an RESP without my signature. Also he wants me to get a social insurance numer for our son he says he needs it. He does have a copy of our sons birth certificate.
I would think that would be all he needs to open anything for our son?
He Makes good money now, but in past has put me in deep finacial debt with no regard at all.(taking money from my line of credit without me knowing)I’m scared he my take all the money out one day he will be ready for retirement by the time our son is eight-teen. Could my son or I get stuck with some type of taxes? ect..

102 Mike Holman

Cheryl – there won’t be any tax problems for you if he opens up the RESP account.

However – Heritage is a “pooled” plan which is not a very good deal.
Also – if your ex opens up the account, he will control the money. He doesn’t have to give it to your son if he eventually goes to school.
Yes, he needs your signature since you are the primary care-giver as well as a SIN for your son.

103 Cheryl

MIKE HOLMAN- Thank you for your prompt reply. You are a great help.

104 Allen

Hi there,
I am a Canadian living in US permanently and my son is attending college in US. How do I withdraw fund from RESP I left in Canada? Also, the mutual fund I invested with RESP fund lost quite a bit of money, less than my original contribution, will I have to pay back the full amount of grant part? Many thanks!

105 Mike Holman

Allen – you should contact the financial institution where the RESP account is being held and tell them you wish to collapse the account. They will do the rest.

Mike

106 Mickey MacDonald

If I decide to collapse the RESP (because it will not be used), do I have to have any other signature on the withdrawlel form other than mine, the contributor ?

107 Mike Holman

Mickey, if the account is individual (ie you didn’t open a joint account with your spouse), then you only need your signature.

108 james wright

a quick one … On an annual basis, is there anything that restricts me from contributing $2500 to my daughters plan, getting the grant and then taking the PSE portion out? I would then repeat this each year, if possible.

Secondly, could I take all the PSE out of the accummulated plan and still contribute the following year in order to get the Grant?

I realize this is not the preferred method of saving for my daughters school .. I just want to know what is allowed … thanks

109 Mike Holman

James, do you really think the gov’t would allow that?

If the child is not enrolled in an eligible school, then withdrawing contributions is called a “capital withdrawal”, not a PSE.

The government will take grant back.

110 SYLVIA SANJENKO

MY CLIENT HAS GERMAN AND CANADIAN CITIZENSHIP. CURRENTLY SHE LIVES IN CANADA AND AND HAS BEEN CONTRIBUTIONG A TO A RESP FOR HER SON. HER CONCERN IS IF SHE MOVES BACK TO GERMANY AND HER SON GOES TO SCHOOL THERE HOW CAN SHE WITHDRAW THE FUNDS SHE HAS CONTRIBUTED TOWARDS THE RESP? CAN SHE TRANSFER THE PORTION INTO A RRSP IN HER NAME IF SHE HAS ROOM?

111 Naynesh

I have RESP for my daughter and son.

Daughter is now 27. My son is about to go to university.

Is it possible to roll over my daughter’s RESP into my son’s? If not, is my only option the collapse of her RESP?

112 Mike Holman

Yes, it is.

113 Michael

I forgot we had a small RESP, because the RESP grant came too late for our children to benefit much. $8,000 contributions, $1,200 in Government Grants. And after 13 years it is only worth $7,700!

While it was loosing money in tech bubble burst and the more recent stock marked drop of 40% two years ago, we put our three children through University to the tune of many times more than the RESP is worth. I always assumed that I could reimburse ourselves for the tuition fees (which were per year more than the entire was worth).

Our children are now 30, 29, and 27 and are now working. I was shocked to hear that I may have to repay the three years of Government grants $400 x3 = $1200. Hardly seems fair.

Is my information correct?

Thanks for your interesting and informative Blog

Mike

114 Mike Holman

@Michael – Yes, your info is correct.

I can’t believe you made $8k in contributions and then forgot about the account!

115 Indrajit

Great forum first of all ! Thanks Mike!
I am in the process of opening RESP for my son (6yrs) and am contemplating couple of options:
(1) Opening RESP in a Bank v/s Heritage funds. Pros and Cons
(2) Can RESP (Grant and Growth) be used for my son, if he plans to attend any international university i.e. lets say not in US or Canada. Any restrictions per se.

Can you please advise on both 1 and 2

116 Mike Holman

Hi Indrijit.

Check out my RESP info page for more RESP articles.

http://www.moneysmartsblog.com/resp-reference/

You should also check out my book:

http://www.moneysmartsblog.com/resp-book-education-savings-plans-canadians/

117 Gale

Mike, my kids have resp’s but have yet to withdraw any eap. They have been receiving osap and related grants for the past few years. My one child is finished in April and the other just started in September. Do you know of any penalties if I withdraw besides the regular tax implications. My husband and I have next to no income, hence the osap grants.
Thanks

118 Mike Holman

@Gale – what kind of withdrawal are you planning to do from the RESP?

119 Gale

Education assistance where my kids get taxed, but that’s the thing, will they get penalized other then just paying what they owe in taxes. As for the amount ?????

Thanks

120 AL

If my son who is 7 yrs old becomes non resident, can i do premature withdrawal or can I transfer from RESP to RRSP Account.

121 Mike Holman

@Al – You can terminate the RESP and get your original contributions back.

122 Allan Drake

My son is three years old and I have done quite well in his self-directed RESP ($18,529.98 in it already). If I continue to contribute $2500/year and invest it extremely well, is not out of the question that the RESP will grow to more money than is needed for his education (wishful thinking but not out of the realm of possibilities).

1. It is my understanding from your blog that there are no tax free withdrawals of any kind other than the accumulation of the $2500/year contributions. So if my son turns 19 and goes to University then withdraws RESP money for room and board, a car, books, and even tuition than those withdrawals are taxed on his income tax return and not mine. In the case of tuition, he would likely receive an corresponding tax deduction.

Is all that correct?

2a. Who controls the release of the funds in the RESP when he reaches 18 or 19 and goes to University, myself or my son?

2b. If there is $250,000 in the RESP and he needs $200,000 to complete his education, what happens to the other $50,000? Is that mine to withdrawal and pay taxes on or does it become my sons?

3. Can call and put options be purchased and held inside an RESP?

123 Allan Drake

I am 45 years old and I am considering going back to University.

Am I allowed to open an RESP for myself? Would there be a benefit in doing so if I plan on going back this year or in 3-5 years?

Would it be similar to TFSA in regards to the taxation of withdrawals?
Would I get the $500 government grant even though I am 45 years old?

124 Mike Holman
125 Albert

What is a GRP payment out of an RESP and is it taxable

126 jan g

Mike- my ex husband ‘stole’ our son’s trust fund. It was set up in both of our names so legally he had every right to take the money, but morally? He still denies this even though I have the his signature on the bank paperwork for when he had made withdrawls from our son’s account and then eventually closed it..
since he has stopped paying child support, against the court order, I am taking him back to court. I have also asked for a full accounting of what happened to the funds in that account. His financial statement claims he now has a $10,000 RESP. Interesting that it is an even amount. He must have just set this up and from what I understand, he can withdrawal those funds and close the RESP at anytime. Is this correct? Can you just have done this to look like a hero in court, only to turn around and take it all back?
thanks, Jan

127 jan g

Jan again.. sorry, I meant could he have done this to look like a hero, not you :)
sorry about the confusion!

128 Sylvia Ng

Mike, great blog! I have a question about going to school more than once. If there is excess money in my child’s RESP account after he finishes his bachelor’s degree, but he plans on getting a masters degree in a few years, can we keep the RESP open, and use the excess later (I think I read there’s a 26 year limit)? Or conversely, if there is no excess amount after the bachelor’s degree, can we actually start another RESP account again for the master’s degree just to get tax benefits? Would the $50k contribution limit apply fresh for the new account?

129 Dana Stastny

Hi,
I wonder if anybody experienced taking money out of RESP as a non-resident of Canada. We are leaving the country this summer. I have collapsed my sons’ RESP and got back the contributions. The government took back the grants.

Now the earnings are sitting there, but because my sons are not 21 yet, and the plan is not opened for 10 years yet, the bank will not give me the money.
Do I have to wait for that time to pass to get it, or will they confiscate it? I was told, that as a non-resident, my only “option” was to donate it to a Canadian university.

In the case either of my sons attends a university in Europe, will the money be release for that? Do they then take the non-resident tax of 25%?

Dana

130 Mike Holman

Hi Donna, I’m afraid you’re going to be out of luck.

See “3.1 Conditions for an AIP” http://www.hrsdc.gc.ca/eng/learning/education_savings/publications_resources/promoter/tools/guide/033.shtml

You have to be a Canadian resident in order to get the rest of the money out of the account as an AIP.

Section 5. Payments to a Designated Educational Institution

indicates that you can donate to a designated educational facility if you are not eligible to do an AIP (which you aren’t).

131 Nidaa D

Years ago I opened an RESP acounts for both my kids and apparently it was a “pooled” plan, I’m trying now to transfer the funds to ACF and we signed all the transferred papers since Dec2010 and till now, we didnt get the money from the old company, can they say no to the transfer, I’m worried about the money, please help.

132 Mike Holman

You should get in touch with the company – the transfer shouldn’t take this long.

133 Kurt

I have a family RESP set up for three kids. Can I withdraw all of the grant money on the first kid to attend college in case the other two don’t attend?

134 Mike Holman

@Kurt – You can only withdraw a maximum of $7,200 of grant money per child.

135 Kurt

Thanks for the quick response. To clarify, if I had $7000 total grant that was for 3 kids can I take it all out on the first kid?

136 Mike Holman

Yes, that is correct.

137 Larry Fagen

Hi there, great site – quick question
I live in Quebec, and have 15K in RESP for my three kids. My oldest daughter has been accepted into an eligible CEGEP (college) for fall of 2011. I would like to take all the money out and move it into my wife’s TFSA. Question: my daughter has been officially accepted to start in September of 2011 – she has a student ID number, a program number etc. I will soon be hit with expenses, can I withdraw all the money now (March 2011), before she officially begins classes?
Thank you

138 kg

2 Questions

1) on EAP vs. accumulated income. Limit per child on grant withdrawal is $7,200 – how does gov’t distinguish between grant money ($500 per year up to 15 years of contribution) vs. accumulated interest, capital gains ? i.e. suppose I have $30,000 in contributions, $7200 in grants and $20,000 in accumulated income/capital gains. I presume I designate whether a withdrawal is from contribution or EAP – but how do I distinguish between the grant and accumulation portion of EAP ? I presume this only matters if you have a family plan RESP with multiple children as potential attribution

2) CRA tax attribution rules – subscriber withdraws contribution money tax free. Subscriber withdraws accumulated portion and it is taxed in child’s hands. How does CRA view use of funds towards living at home rent, car, utilities ? Essentially accumulated money is taken out by subscriber, taxed in child’s hands and given back to subscriber. Seems non-arms length – do they need to see a trail of records – rent, etc – otherwise subscriber could withdraw money and keep it ? I presume the answer to be reasonable expenses but what if say money is taken out as a down payment on a house for child to live in with subscriber on title ? Contributions are then used to pay mortgage ? Would this be considered reasonable ?

139 Mike Holman

@KG

1) Any EAP (educational assistance payment) will contain a portion of grant. You don’t get to specify whether an EAP has grant money or not.

Your financial institution can tell you how much grant has been paid to each beneficiary. It’s up to you, to make sure you don’t go over the $7,200 limit.

2) Payments from accumulated income (EAP) have to be sent to the beneficiary – not the subscriber. Once the beneficiary receives the money, they can do whatever they like with it (including give it to the subscriber).

You don’t have to show receipts or anything like that.

RESP payments are not monitored at all, as far as I know. My theory is that the only way you can get into trouble, is if you have other issues with the CRA and they decide to investigate all your financials.

140 John

My daughter is in first year university and has unused tuition fees available. How do I manage this amount? Transfer the entire amount to myself as I am in a hire tax bracket than she will be over the next few years (I made all the contributions to the RESP) or leave it for her for future tax savings?
Is there a strategy to maximizing the tuition/education amounts?

141 Spring

Two questions:
1. $7200 Grant limitation for one kid, including Canada Learning Bond? Or just CESG?
2. My elder son (18 now) will go to university this September. I set up family plan for my two kids. The young one (6 yearsold) has received CESG $2000 and CLB $1000 up to now. Can I contribute to my younger one and get grant every year then withdraw PSE and EAP for my elder son when he is in university in the coming 4 years? Is there any time regulation between your contribution and withdrawal?
Thank you

142 Mike Holman

1) Not including CLB.
2) Yes, you can. There is no timing rule.

143 Spring

Thank you for your quick reply.
I am not sure if it’s a mistake or not.
On your book page 47, Chapter 4 Summary, 4th line from the bottom, it is saying A max of $5,000 of PSE payments can be made from your RESP accout during the first 13 weeks of school.
I think it should be $5,000 of EAP payments not PSE payments.
Thanks again.

144 Ling

Hello, my ex set up an RESP or bond for our daughter almost 3 years ago. My question is, can I cancel it or request to court to cancel it? Reason: I’m afraid he might just use it as a leverage to our daughter in the long run once she turns 18. As by the time she’s 18, there would be no more child access or court order.

145 Mike Holman

Ling – You can confirm with a lawyer, but I doubt you could get the RESP account canceled.

146 Mark

If a kid goes to a University this coming September, do I need to wait until she starts attending classes to make the first withdrawal? TD is asking for a proof of enrollment, which is just a print out with course name, hours, credit, University name, etc.
Can I go and arrange the first $5,000 EAP withdrawal now or should I wait until Sep?
Thanks,
Mark.

147 Mike Holman

Hi Mark. No, as long as your financial institution allows you to withdraw, then it is ok to do so. Even if the child hasn’t actually started school yet.

148 Sally

I have a family RESP for 4 children, with lots of unused grant room. My oldest will be going to school in the Fall, but my youngest 2 still qualify for contributions. It seems that if I withdraw extra money, then reinvest it, I can receive the government grants multiple times. My husband says this must be illegal. Is it?

Sally

149 Herb Lewington

Hi Mike,
My kids are applying for OSAP grants/loans and I would like to know if we are required at declare their entire RESP amounts in the application, or if we are only required to declare the RESP amount we intend to withdraw for that year.
Thanks,

150 Mike Holman

Herb – What does it say on the application? It should indicate there or you can call an OSAP office for clarification.

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