8 Things You Need to Know About Withdrawing Money From Your RESP Account

by Mike Holman

So your little darling is going to a post-secondary educational facility once they finish high school. Hopefully you’ve already verified that their school is eligible for RESPs.  The big question now is how to access some of those dollars that you have saved up in an RESP account for them.

 

I’ve put together a useful list of all the information you need to know in order to get your money out of an RESP account.  Keep in mind that your financial institution might have slightly different requirements, so please contact them for details.  If you have a scholarship/group/pooled RESP then you will definitely have more restrictive rules and should contact your financial institution.

1) You don’t need receipts or a good story to withdraw funds

If you want to withdraw money from an RESP account, all you have to do is provide proof of enrolment. Check with your financial institution for their proof of enrolment criteria.   The government has provided a Verification of Enrolment form, which most educational institutions will fill out for you. You don’t have to provide receipts or any other kind of justification for your payment request.   Just ask for your money.

2)  Ask for more, rather than less

Withdrawing from an RESP is not as convenient as withdrawing from your chequing account.  Don’t be afraid to ask for enough to tide your student over for a while.  You don’t have to give all the money to the student right away when you withdraw it. Most students are not as financially savvy as you are, and might benefit from getting a regular payment, rather than a lump sum at the beginning of a semester.

3) The money in your RESP is your money, until you give it to the student

All withdrawals of contributions from an RESP account can can be sent to either you (subscriber) or the student (beneficiary).  If you request a withdrawal of accumulated income in the form of an EAP (educational assistance payment), the money has to be sent to the student.

For the record, I don’t agree with the EAP rule – what if a parent pays for tuition/book/residence/meal plan and then requests an EAP – shouldn’t they be getting the cash?

4) Only the subscriber can request payments

The student who is the beneficiary of an RESP account has no control over the money.  They cannot request payments – only the subscriber.

5)  Specify if the withdrawal is to be from contributions, non-contributions or both

There are two parts to an RESP account:

  1. Contribution amount.  This is the total amount of all your contributions to the account.
  2. Accumulated Income.  This is all the money in the RESP which is not contributions.  RESP grants, capital gains, interest payments, dividends are all included in the Accumulated Income portion.

Example of contribution amount and accumulated income amount

Joe contributed $1,200 per year for 10 years to an RESP account he set up for his niece. 20% grants were paid on all the contributions and the investments have gone up in value.

  • Account is now worth $17,000.
  • Total contributions are $12,000 (10 times $1,200).
  • Accumulated income amount is $5,000 ($17,000 minus $12,000).

You can do two types of withdrawals from an RESP account if your child is attending school:

  1. PSE (Post-Secondary Education Payment) is a withdrawal from the contribution amount.
  2. EAP (Educational Assistance Payment) is a withdrawal from the Accumulated income.

Some interesting facts about PSE and EAP:

  • PSE payments are not taxable income and there are no limits on withdrawals.
  • EAPs are taxable in the student’s hands.
  • There is no withholding tax on EAPs.
  • A T4A slip will be issued by the financial institution at the end of the year for any EAP made during the year.
  • There is a $5,000 limit for EAPs in the first 13 weeks of schooling.
  • Most institutions will default payments to 100% EAP which means that the money is taxable income for the student.
  • When doing a withdrawal, you should specify how much of the money will be coming from contributions and how much from accumulated income.

6) Don’t withdraw more than $7,200 of grant money per beneficiary

If you have a family plan RESP, make sure you don’t withdraw more than $7,200 of grant money per beneficiary. $7,200 is the lifetime grant limit per beneficiary. Typically, any EAP will contain grant money.

Because the subscriber sets the amount of EAP for each withdrawal, it’s possible for someone to withdraw a disproportionate amount of EAP for one beneficiary which might mean that one beneficiary will be over the limit for RESP grants.

If that happens, the grants will be returned to the government. Your financial institution keeps track of how much grant money is paid out to each beneficiary, so all you have to do is ask them for an update and change your withdrawals appropriately.

Example of over-withdrawing grant money

Homer has two kids; Bart and Lisa. He set up a family RESP for them at a young age and eventually maxed out the lifetime grant limit of $7,200 for each child. This was accomplished by contributing $36,000 for each child.

Eventually the account looked like this:

  • Contributions = $72,000
  • Accumulated income = $30,000 (this includes the grants)

When Bart enroled at a local heavy machinery training school – Homer started making withdrawals from the RESP account. Over the two year program, he withdrew $30,000 and sent the money to Bart. However, Homer didn’t understand RESP rules very well and didn’t specify if the withdrawals were to come from contributions, accumulated income or both.

His institution defaulted the payments to EAP (from accumulated income) which means that all the grant money in the account went to Bart. Once the government figured out what happened, they “took back” the amount of extra grants used by Bart. $7,200 was removed from the RESP account. This could have been avoided if Homer had asked his institution where the grant money was going. He could have withdrawn just enough EAP to give Bart his share of the grants, and then started to withdraw contribution money.

Related Article:   Family Plan RESP Withdrawals – Don’t Overpay Grants To A Beneficiary

7) Watch the taxes

EAPs are treated as taxable income for the student. Most students don’t pay much, if any income taxes. If the student is in a taxable situation, it might be worthwhile to adjust the payments to reduce the amount of EAP which will reduce the taxable income for that year.

8 Don’t leave Accumulated Income in the account

When accumulated income is withdrawn from an RESP account as an EAP – there are no penalties and the money is considered taxable income for the student. If the student drops out of school and the accumulated income has to be withdrawn as an AIP (Accumulated Income Payment), then the RESP grants are returned to the government, the money is taxable income for the subscriber and there is a 20% penalty tax as well.

Clearly removing accumulated income from your RESP via EAP is the preferable method.

If you have $20,000 of accumulated income in an RESP account, one might decide to withdraw $5,000 for each year of a four year program. Sounds reasonable, but what happens if your child decides she’s had enough education after one year? You will be left with $15,000 of accumulated income in the account which will be very expensive to remove as an AIP.

You can take advantage of the six-month rule which allows you to do an EAP for six months after the child has stopped going to school. Or you can wait and then eventually use other methods to reduce the RESP penalties. Alternatively, you can remove more accumulated income while the child is going to school. This is the reason why most financial institutions default payments to “EAP” – because it’s generally in your best interests to do so. Don’t worry about taking more than the child needs – you can store the extra money in your TFSA or the student’s TFSA.

9) The child can still receive grants, even while doing withdrawals

Yes, that’s right.  As long as your child is still eligible for grants, you can continue to make contributions and receive grants in the RESP account while doing withdrawals.  Check the RESP contribution page to make sure the child is still eligible for RESP grants.

More detailed RESP information

Check out the RESP rules page for a list of more detailed RESP articles on this site.

Have you completed an RESP withdrawal?  Do you have any tips?

Be Sociable, Share!

{ 97 comments… read them below or add one }

51 Mike Holman

@Steve – Yes, we posted at the same time. :)

You’re right about that wording – it’s not as clear as it could be.

I’m not clear on what you mean when you say you’ll be able to get more EAP for your older daughter.

The grant is supposed to be paid out proportionately in EAPs, so if your older daughter is running out of grant, she should also be running out of her EAP amounts.

In other words, if the one daughter has received $7,200 in grants, then the second daughter should be able to withdraw all the remaining non-contribution amount as an EAP. Which basically means you won’t be able to make any more EAPs for the older daughter.

52 Steve

@Mike: Well I’m going to have to go back through the math. My provider (BMO) did not know how it was calculated and I have opened a ticket with them. After reading your warning about the CESG claw-back I don’t want to have to send any money back to Mr. Flaherty; I send enough. I’ll update you when I get some answers.

Steve

53 everest

You mentioned $50,000 – Lifetime contribution limit per beneficiary. Because there is no annual limit, you could potentially make one single contribution of $50,000 to an RESP if you choose.

While in the example, you mentioned “the parents can contribute $2,500 (this year’s contribution room) plus another $2,500 (a previous year’s unused contribution room) “.

I am confused about this, if the parents could contribute one single $50000, how about the $2500 limit for current year and the previouse year’s contribution room?
Thanks

54 Mike Holman

@Everest – You are correct. The lifetime contribution limit is $50,000.

When I talk about the $2,500 annual contribution limit, I’m referring to the “grant-eligible” contribution amount. The first $2,500 contribution each year gets a grant, whereas any further contributions that year don’t get any.

Very few people want to contribute to an RESP if it won’t generate a grant, so the $2,500 is essentially an “effective” contribution limit.

55 Rick

Thank you for your advice and for adding thing #9 to your article.

Further to my comment (#26) about my children entering University at 15 years old, I confirm you are correct. I can contribute and collect in the same year. My strategy is to collect as my 15 year old starts University this fall, while I contribute the maximum this year and next (even if I need to take out a loan).

However, my credit union confirmed to me yesterday that we are not able to collect until my child’s 16th birthday.

56 Mike Holman

@Rick – There is no age minimum for RESP withdrawals if the child is attending full time.

If the child is attending part-time, they must be at least 16 years of age to withdraw.

And what’s the deal with a 15 yr old going to university? Is he some kind of genius? ;)

57 Rick

Mike, The globe and mail profiled your article and book today … congratulations.

I looked on the CRA website to confirm if a full time student needs to be at least 16 to collect from the EAP. You are correct. http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/resp-reee/pymnts/p-eng.html

I am going to contact my credit union to correct their misunderstanding of the rules. Thanks again.

58 Scott

I am getting mixed signals from the post 50, etc. related to EAP withdrawals after reaching the $7200 limit. In my case, my oldest daughter has reached the maximum grant limit of $7,200 but I understand that I can still withdraw EAP Growth portion (not grant portion) for her. Is this correct?

59 Mike Holman

Scott – that is not correct.

60 Rick

Mike, Further to my comment #57, my credit union has confirmed the rule by completing the withdrawal, even though my child is only 15.

To answer your query: “And what’s the deal with a 15 yr old going to university? Is he some kind of genius?”

My son completed high school at The University Transition Program at UBC. The Transition Program is unique in BC and Canada as it allows gifted students to accelerate learning and complete 4 – 5 years of high school in just two years. It’s goal to to prepare young bright student for early University acceptance. http://universitytransition.ubc.ca/

I look forward to our next PAC meeting so I can explain this experience to the other parents who are in the same position. Thank you for your knowledge and guidance. I was ready to give up until I read your last comment (#56). All the Best.
Rick

61 Mike Holman

Hey Rick – thanks for letting me know how things worked out.

Good luck to your son!

62 Marc Larose

Try to get info on OSAP refusing student for loan because they have RESP. One mewntionned that they told her that she must use all her RESP before applying for a LOAN. (Parent doesn’t work, very low revenue .

63 Adrien

Can I get a few clarifications regarding EAP family plan limits please?
1) Does the $7200 limit per child only apply to CESG grant money or does it include all non contribution funds. If it’s only grant money, is my institution obligated to allow me to decide which type of contribution(earned income or grant) makes up the EAP?
2) Assuming the $7200 limit applies only to CESG, does this mean that there are no EAP limits and any available earned income amounts can be shared amongst my children as I see fit?

64 Adrien

Hi again. My questions in post 63 were prompted by the following statement made in point 6;

“Because the subscriber sets the amount of EAP for each withdrawal, it’s possible for someone to withdraw a disproportionate amount of EAP for one beneficiary which might mean that one beneficiary will be over the limit for RESP grants.”

Is this correct or should it read;

Because the subscriber sets the amount of EAP for each withdrawal, it’s possible for someone to withdraw a disproportionate amount of “CESG within an EAP” for one beneficiary which might mean that one beneficiary will be over the limit for RESP grants.

Thx for any clarification.
Adrien

65 Vikram Varma

So if I understand correctly, there are no limits on PSE amount. So if I have 60,000 in an RESP account for my two kids, 40,000 of which is the contributed amount, can I withdraw the 40,000 in one year to use as a downpayment on a house that the kids will use as a residence while they study?

66 Mike Holman

@Vikram – Yes, but you don’t have to use any of the contributed amount for educational purposes.

67 John Ly

I am in a similar camp as Adrien and would like to know if the lifetime grant limit of $7200 only applies to CESG grant money or does it include all non- contribution funds.

For example: I have $30 000 in Accumulated Income ($7200 worth of grants and $22 800 worth of capital gains from stocks). Can I use $7200 worth of EAP one year and then another $7200 the next year?

68 Mike Holman

@John

like to know if the lifetime grant limit of $7200 only applies to CESG grant money or does it include all non- contribution funds.

The limit only applies to grant money.

69 Stefan Horvath

Unfortunately the article is dangerously superficial and incomplete for people who qualify for OSAP. Taking out an EAP will reduce your OSAP entitlement, which probably means that your non-repayable grant protion is reduced. Also the same happens when parents withdraw principal. For OSAP purposes the money is considered income (line 850 of the application) for the parents and has the same effect as described for EAP. For all purposes these are very well hidden taxes of 15-25% in Ontario for families with low and middle incomes who made the sacrifice and saved for RESP.

70 Stefan Horvath

In addition to my comments before: For low and middle income parents RRSP contribution also decreases your OSAP and can result in lower non repayable grants. RRSP reduces your paid taxes, and OSAP calculates your income by deducting from your gross income the taxes paid. I wonder how this is calculated for parents who contribute to pension plans and their employer also contributes and they have full medical benefits. I spent $5000 on medical expenses, unfortunately OSAP does not credit you for it. OSAP has created a shadow tax system, hidden from public and legislative scrutiny.
It considers types of income that should not be taxable, it discriminates between people with benefits and those without. Actually even the documents detailing the exact rules are well hidden from the public. Please try to find the OSAP Manual for 2011-2012 on their website.. I did find a 2007-2008 somewhere on the web, but not on their website.

71 Leah

When my daughter was 6 in 1999 she did some acting and her dad put $21,000 in an RESP with his name as subscriber and her name and her two younger brothers as beneficiaries. The fund dropped dramatically (Science and Technology) and years later she is almost 19, studying at UBC and there is only $4200 in the fund. My husband and I are now separated, he is mentally unstable, on welfare and we aren’t in contact. Can she access the funds when she turns 19 or does she need her dad to access the funds? Can she use the entire amount herself since it is such a small amount or does it need to be split with her 15 and 16 year old brothers?

72 Robert

Hello Moneysmart,

4) Only the subscriber can request payments
The student who is the beneficiary of an RESP account has no control over the money. They cannot request payments – only the subscriber.

Could you please expand a little or advise on your #4 bullet noted above?

My ex-spouse and I hold an RESP for our son. We are joint subscribers to the account and it is part of our divorce agreement that all investment decisions and withdraws be from the account require joint agreement by both parties.

Our son began university in Sept 2011 and we withdrew the maximum $5,000 for tution and books. I was extremely surprised when completing the form sent by the financial instution – Wood Gundy – that stated that if the beneficary was over 18 years of age that he could withdraw funds without the subscribers’ knowledge or permission. When it came time to withdraw funds for his second school term this Jan 2012, my ex-spouse was able to withdraw $5,000 from the RESP account without my knowledge, approval or signature, I beleive under the guise that our son had turned 18 on Jan 31, 2012.

I really need to know the validity of your statement and any references I can research.

Thanks so much, Robert

73 Mike Holman

Robert, Google “resp provider guide” and look at page 3-2-12 – under “5. Processing an EAP Request”, it indicates that the subscriber requests the EAP. This also applies to withdrawing contributions.

This isn’t really an RESP rule. The subscriber is the owner of the account and any financial institution can only take instructions from an account owner. The beneficiary is irrelevant.

Do you have a link to that Wood Gundy form?

As far as your spouse taking money out – that seems like an error since it is a joint account. You should contact Wood Gundy and clarify that any instructions require both of your signatures.

74 Robert

Thanks for your prompt response, Mike.

I have a call into Wood Gundy to clarify and will keep you posted.

Robert

75 Mike Holman
76 Carol

Hi,
I and my ex-spouse have a RESP account for our daughter at BMO. The account is under my ex’s only and when I ask BMO to add my name to the account, they said it cannot be done as we are not spouse’s. I want to know what I should do, should I open another RESP account and have 2 running at the same time? I am just concern that my ex will use the money I have contributed should my daughter decide not to attend university.

77 Mike Holman

@Carol – Yes, you can open up another RESP if you wish. You should coordinate contributions with your ex so that contributions aren’t made that don’t get any grants.

If your ex has the old account, then he has 100% control over the money. The RESP is an asset that should have been included in any kind of separation/divorce agreement.

78 John

Hi there,

My neice has become estranged from her parents but still wants to goto school. They had an RESP for her, but said they will not release the money to her or her brother , also estranged. Can they do that?

79 Mike Holman

@John – Yes.

80 Eileen

HI,

If i want to withdraw all the money that i put in the resp,,,am i going to be taxed on that??? I need the money for an emergency.. Thanks.

81 Jacob Janek

Hi, I will be attending a non-designated post secondary school in the Czech republic next year. How would I take out my RESP funds?
Thanks

82 Que

Hi Mike,

First off, sorry to beat this one to death, as I have read all the comments, but I really need to clarify number 6.

Here’s the example:
5 Children
180,000 Contributions
36,000 CESG (7,200 each child)
100,000 Investment Gains

Do I have to wait until the youngest (5th Child) goes to Post Secondary before we can tap into that 100,000 of Investment Gains? Or can I give each child an EAP of 27,200 (specifying to the bank to separate it as 7,200 CESG and 20,000 Investment Gains)? Or is this a question I need to ask my bank?

The alternative would obviously be 7,200 EAP (CESG) with 20,000 from Contributions for each of 4 oldest children, but then the 5th youngest would be stuck with a whopping tax bill on the remaining 107,200 EAP? If this is the case, I am totally confused on the benefits of a family plan RESP.

Hopefully this will be the last clarification from you on this question.

Thanks for helping all of us plan for our children’s education,
Que

83 Mike Holman

You can give each child their own EAP when they are eligible.

84 Que

So does that mean I can give each child an EAP of 27,200 (specifying to the bank to separate it as 7,200 CESG and 20,000 Investment Gains)?

Thanks for the quick reply Mike!

85 Mike Holman

Not exactly.

When you do an EAP, you can’t specify how much is CESG and how much is investment gain. The bank will calculate that.

The main thing is to do your withdrawals and be aware of how much CESG is being paid to each child. Keep withdrawing for each child until their allotment of the CESG is equal to $7,200 and then don’t do any more EAPs for that kid.

86 Que

That makes sense; its nice to be comfortable and have clear expectations when you are planning. Thanks so much Mike! We all appreciate it.

87 Adrien

If you look at the following doc, starting at page 229 of the PDF ( 3-2-15 of doc), it explains the math that is used to determine what proportion of contribution of an RESP make up an EAP.
http://www.hrsdc.gc.ca/eng/learning/education_savings/publications_resources/promoter/tools/guide/Guide_E.pdf

88 Sam Bechalani

I have a question not a comment.
What do you do if you get sick (disabeled), and you can’t continue to pay your monthly contribution to RESP.

89 Dwayne LaFitte

Hi,
My son is a status indian and is getting his education paid for. I also have 10,000.00 in RESP (contibutions and grants). Am I still able to withdraw money for him. Thanks.

90 sarah

To keep it short parents divorced a long time ago and have been in and out of court for the past 15 years. I no longer talk to my mother how holds all the finical information about RESP but both parents hold the account. Is there a way to get to my RESP or just the EAP with out have to have her consent deal with more lawyers. I am 19 years old and the accounts with knowledge first financial.

91 Mike Holman

@Sarah – Please read point #4 from this article.

92 Mike Holman

@Dwayne – The rules state that you can withdraw money if he is enrolled at an eligible institution. It shouldn’t matter if the education is paid for from a third party.

93 Kerry

Hi Mike,

I have 3 children, 2 are now attending university. Not all of my RESP accounts are with the same financial intsitution. I am getting a bit overwhelmed trying to stay on top of how much grant money has been withdrawn to date. The financial institutions seem a bit unsure themselves as they keep on reporting CESG money and interest combined. Is there a government department (web site, phone #) that I can contact to get the exact amount of CESG has been currently withdrawn to date for each of my children that are attending university?

Thanks.

94 Mike Holman

Kerry, your financial institution is responsible for reporting how much CESG money has been withdrawn from your account. Remind them of their obligations…

Here are two phone numbers – they should have the info, but it might not be completely up to date. Make sure you ask them the ‘as of’ date for their numbers.

HRSDC 1 888 276 3624

CRA 1 800 267 3100

95 Gloria

Hi Mike,
I have 2 questions:

1) The mutual fund account into which we contributed over the last 15 years is now valued at less than the total of contributions and grants. When we made a withdrawal this year I don’t recall being asked by our financial advisor to allocate an EAP amount. We have now received a T4 for 20% of the amount we withdrew. So, my question is: Is the grant amount considered to be 20% of the remaining value of the account or the actual amount that was put into the fund?

2) This RESP account is a family plan. When it lost money, we started new plans for our younger child who was 13 at the time. Our older child will have used the entire amount from the family plan by the time our younger child starts university, and therefore will have withdrawn all of the grant money from that plan (the grant amount does not exceed the life-time limit for one beneficiary). For the new plans, can we make contributions based on the full life-time grant limit for our younger child or does the designated grant amount in the family plan reduce what we can contribute to the new plans?

Thanks

96 tony

please any one tell me is INDUSTRIAL ALLIANCE is good for RESP

97 JUN XIA

Hi, I withdraw RESP, the income is capital gain, but it is in box 42 of T4A. Can I claim this as the capital gain in my daughter’s tax return, it will save half of the tax money since capital gain tax is 50% of the regular income. Thanks.

Leave a Comment

Current ye@r *

Previous post:

Next post: