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?

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{ 97 comments… read them below or add one }

1 Rachelle

Thanks Mike,

I have a RESP and I won’t have to worry for a while because my son is 2. Explaining how to take the money out is great, I was wondering about this. As usual our government has given us a great program, but there are some rules that are not immediately obvious.

2 Mike

Thanks, Rachelle.

2 is pretty young, but he might end up being one of those child genious types and attend university at 8. :)

3 Canadian Couch Potato

Great post, Mike. Got two teenagers who are getting close and this is really helpful info.
Cheers!

4 Echo

Thanks for the tips. Does the student have to be 18 to withdraw the RESP money? A friend of mine said her nephew graduated high school at 17 and doesn’t turn 18 until January. When they tried to cash out some money for the Fall’s tuition, the bank said he needed to be 18. What the heck? If he has proof of enrollment, why should it matter?

5 Mike

Couch Potato – Thanks Dan!

@Echo – The bank is incorrect. There is no age minimum for RESP withdrawals for fulltime studies. If the beneficiary is using RESP funds for part-time studies, they must be a minimum of 16 years of age.

6 Mark

Nicely done, sir. I had always wondered about how it all broke down on withdrawal from the RESP. I have a few years left to worry about that …

Question about point 6: What is the most that Homer should remove from the accumulated income? Is it $15000 (Bart’s prorated share of the accumulated income) or is it $7200 (assuming the grants are the first things out)?

Another question: Your assumptions have been for a RESP that has gained money. Let’s say Bob was unfortunate, bought Japanese equity funds at the wrong time 15 years ago and *lost* money on the investments. Bob took his $12000 in contributions, and is only left with $9000. If there is *no* accumulated income, is it all “contribution amount”, or do the grant amounts ($2400, assuming the money went in appropriately) stay as “accumulated income” no matter what?

7 Ben

Now that was a good read. Good work!

I’m still dithering on setting up the RESP for my newborn, and was wondering about whether I should set up a family plan. If more kids are planned, should I just set up a family plan now, or is that not even possible until there are more kids?

Blog post idea – family plan vs. individual plans for several kids?

8 Lance

I’ve always wondered if there is a limit to the amount of withdrawals? Hypothetically, say you did very, very well and you accumulated $250,000 for a single child in their RESP. School happens to be $10,000 per year and they are living at home. Only a 4 year degree will be earned. Can you withdrawal $62,500 per year even though this is substantially more than they need?

9 DG

I don’t think #6 is right. For family plans, CESG and growth may be shared by beneficiaries. I’ve always perceived family RESPs as much less vulnerable to penalties than an individual RESP, because only 1 of your children needs to go to school to extract all the CESG/growth as EAP.

Am I missing something?

ref: See section 8.2 of http://www.hrsdc.gc.ca/eng/learning/education_savings/publications_resources/promoter/tools/guide/021.shtml

10 Diwa

Good post!
I have a 2-yr old. So, wouldn’t need to withdraw for a few years, but I’ve always wondered how the withdrawing part works, and if there is a smart way to withdraw.
Thanks

11 Mike

@Mark – thanks.

1) The grants are part of all EAP payments. The actual calculation is quite complicated so the best thing to do is to find out from the financial institution how much grant has been paid out.

2) Great question. The grant amounts stay as “accumulated income” so it’s the contribution amount that is reduced.

12 Mike

@Ben – good suggestion for a post. I would suggest just setting up a family plan with one beneficiary. That way you don’t have to do a new account setup and transfer later on.

13 Mike

@Lance – In theory you are only supposed to withdraw as much as you need for the student. In reality, there are no checks and in fact the government made a budget change in 2008 to allow EAP from RESP account for up to 6 months after a student has stopped going to school.

I can’t say that you can withdraw whatever you want from the account, but it sure seems like the government is trying to let people avoid penalties where possible.

14 Mike

@DG – Yes, CESG and growth can be shared in family plans, however only $7,200 of grants can be paid out to each beneficiary. It doesn’t matter if the grants were accrued by another beneficiary.

In actual fact, the same sharing rules apply to siblings with individual accounts so there isn’t really much difference between the 2 account types.

@Diwa – thanks!

15 NORM

Great information. I have a family plan for my three children. In my mutual fund statement, they let me know the grant money and earnings per child (grants + interest on grants) and the overall earnings from my contributions (that are attributed to all three). When I withdraw money as an EAP, can I ensure that the first amount is take from each child’s grant money, or will this be done automatically? This way, I can maximize the flexibility and use the overall earnings for the child who needs it most. Thanks in advance for your advice!

16 Mike

@Norm – You don’t have the option of specifying where the EAP withdrawal comes from (ie grants vs earned income). The EAP withdrawal will normally be made up of grant money as well as earned income – the ratio will be calculated by your financial institution.

17 Li

Thanks for the information, but I have one question. My parents want to withdraw some money from RESP account and requires a verification of enrollment, which I provided. Now, what if I were to withdraw from my program in the middle of the term? What ramification would that have on the RESP?

18 Linda

Hello Mike what happens if a child is enrolled in college and after one week decides to quit? Because his college course was 2 years or less we changed the plan to a self directed savings plan we have taken out $5000 EAP leaving about $3800 in the account as well as a principal balance of $7000.
What would be our best move in this case? We do have another child who is 11. (Could it be transfered?)
What happens with the EAP and government grants and is any of the school tuition recoverable?.
thanks Linda

19 Mike Holman

Hi Linda, I phone the HRSDC because I’ve received several similar questions lately.

They said that you don’t have to return the RESP and there won’t be any penalties. Their position is that if the child was enrolled at the time of the RESP withdrawal request then there are no issues.

You won’t be able to return the money to the RESP account, but I don’t see why you can’t just contribute it to an RESP account for the 11 year old.

I don’t know about the school tuition – I would assume you might be able to get a portion of it. I would call today since there are probably time limits for refunds.

Mike

20 Alex

Great piece Mike. There is just not enough commentary/articles on the mechanics of finally using the funds inside the RESP. I guess after 12 years of grant money accumulating, we should be seeing more of this questions.

Is it a good idea to take all your Return on Contribution (ROC) money out of the RESP once the kid starts school and stick it into a bank account. I hear that the ROC does not even need to go towards education (one can buy a house, a car, go on vacation etc.) My worry is that I don’t want my contibutions stuck inside an RESP should anything happen (kid drops out, dies, etc). Is there any negative ramifications to removing all the ROC at once; will the government deny grant money already on the books? Thanks.

21 Mike Holman

@Alex – Thanks.

Yes, the contribution amount does not have to be used for education.

There are no ramifications to removing all the contributions at once – provided the child is enrolled at a qualifying institution.

There aren’t any penalties on contributions if the child drops out of school so I wouldn’t worry so much about that. It’s the accumulated income (non-contribution) portion which can be penalized if left stranded in the account.

And it’s not ROC – it’s just called the contribution amount.

22 James

Mike

Thanks for the succinct info.

Through poor planning my son enrolled in a university course he was not eligible for. Withdrawing has put him in the part-time category because it is too late to enrol in any other courses. He has enrolled at a RESP eligible distance learning institution so as to complete the pre-req course in order to be able to carry on.

Will the the combination of his university and distance learning courses allow him to retain his full-time status for RESP withdrawals? How will CRA view it and will the promoter allow it?

23 Mike Holman

James, one of the qualifications of full time study for the purpose of RESP withdrawals is a minimum of 10 hours a week of classes, training, lab work etc.

Does either program involve 10 hours/week? (this doesn’t include homework).

24 Emily Q

Hello,

I was just wondering a few things you may be able to help me with.
Do you know what would happen if a student was enrolled in post-secondary education for over two months and then decided they wanted to drop-out what would happen to their RESP? Would it be completely cancelled?
Thank-you for your help.

25 Mike Holman

Emily – nothing would change with the RESP account. Is that what you are asking?

26 Rick

Great information – Thank you.

I have a unique situation. My two children (13 & 14) are in an accelerated education program, so they will begin University at 15 years old.

I have a family RESP plan that I have contributed for years with about $30,000 in it.

I will begin cashing out in September 2011 when my older child begins University at 15. Will I be able to contribute (and get the Government contribution) until 2012 (when he turns 17)? Or do contributions stop once I begin to cash out?

27 Mike Holman

@Rick – It sounds like you should be asking your kids this question – not me! :)

Kidding – congrats on the smart kids.

Contribution amounts are not affected by withdrawals – so yes, you can keep contributing and withdrawing at the same time until the end of 2012.

In fact, you can recontribute money you just withdrew, so keep that in mind if you need more money to reach the maximum.

28 Ben

Great information Mike and thanks for sharing it.

My child is 18 and has enrolled in university last year. I also withdrew from his RESP last year.
Can I still contribute to his RESP this year even though I have started withdrawing?

29 Mike Holman

@Ben – you can keep contributing, but there won’t be any grants.

The calendar year in which the child turns 17 is the last year they are eligible for RESP grants.

30 dominique

Is it only the contributor who can withdraw money from RESP or can our 20 years old son do it himself now that he is an adult and the RESP are under his name?

31 Tricia

Hi Mike — thanks for the help, I’m starting to hyperventilate at the stories I’m hearing about withdrawing!!

So I’ve read this article, and a few others. I have verified that my step- daughter’s school is eligible, have printed off the Vertification of Enrolment form (which I may not be able to have filled out until a little later; she has a conditional letter of acceptance right now), but unless I’m missing something, I don’t see what to do NEXT! :) Can you help?

32 Mike Holman

@Tricia – Try to breathe!

Sounds like you are in good shape. The only other thing I can suggest is to make sure the RESP money is invested in safe investments such as GICS or cash. You don’t want to be in equities now.

33 vanessa

Hi Mike,

I rtecently opened up an RESP for my brother. I was wondering, where I can find a list of qualified colleges and univ. also the RESP under EAP can be used for books and transportation right?

I just want to make sure that when he does take the money out that he will be able to use it for all other things assosiated with post secondary school expenses.

Do you know why there is a limit for fist time withdrawl?, I think its for 5000 for the first 13 weeks of studies.

34 Mike Holman

@Vanessa – The first link in my article goes to the list you are looking for.

The money from an RESP account can be used for whatever you like.

35 Asif

With respect to point 5 you mention that there is a $5,000 limit for EAP in the first 13 weeks of schooling.
I opened my family resp in 1998.
Based upon resp information from revenue Canada (see link):
http://www.cra-arc.gc.ca/E/pub/tg/rc4092/rc4092-e.html
the limit appears to apply if the resp was opened after 1998.
Is there an EAP withdrawal limit in my situation?

36 Mike Holman

@Asif – No. The EAP limit only applies to RESPs established after 1998.

37 John D

Thanks – great info

Can i withdraw from the RESP for my son’s costs from last year? I payed on my credit card and would like to recoup costs.

38 Mike Holman

@John – If your son is eligible for payments, then you can withdraw money from the RESP.

39 John D

Thanks Mike,

so to clarify, yes, my son is eligible (i.e. he attended full time university starting September 2010 to April 2011, Plus he also registered for 2 spring term classes starting May 2011) All of this I payed for with my credit card (last September 2010 and again May 2011). I sounds like I can now withdraw money from the RESP using his registration documents to cover this cost.

Also, my older (also eligible) son has been enrolled in university full time for two years and part time for 2011. I have not yet withdrawn from the RESP for him (the market crash wiped out my contributions and I waited to rebuild). Since he was eligible all this time, I can withdraw based on his registration documents for the past 3 years correct?

40 Mike Holman

You don’t have to make withdrawals based on the actual past expenses – just show the current enrolment proof and then request whatever amount you want.

41 John D

Seriously? The withdrawals don’t have to match the expenses? That’s great news.

I wonder how many other people were under this impression.

thanks!

42 Peter

Thanks Mike for the informative blog post on RESP withdrawal.

Just to clarify on your answer to John D’s question. Can I ‘catch-up’ on withdrawals? i.e. if I did not withdraw from RESP amount last year (2010) can I withdraw an amount now (2011) and ask the bank to issue a T4A for the last year (2010)?

I asked my bank and they said I can not. Only way it was possible to do so was under 6 month rule which allows you to do EAP for six months after the child has stopped going to school.

Thanks!

43 Mike Holman

@Peter – No, your bank is right.

44 Janine

Can we borrow from OSAP, then withdraw money from the RESP at the end of April to pay off the loans?

45 Mike Holman

@Janine – I don’t see why not.

46 Steve

I’m confused on point 6 re: don’t withdraw more than $7200 grant money per beneficiary.

At this link: http://www.hrsdc.gc.ca/eng/learning/education_savings/publications_resources/promoter/tools/guide/021.shtml the site states that sharing of CESG is allowed:
“The Basic CESG and earnings can be used in an Educational Assistance Payment (EAP) by any eligible beneficiary of the RESP, as long as the beneficiaries meet the requirements for the EAP.” The only requirements is that it be a Family Plan for siblings/cousins.

It does not state anything about the limit of 7200 per beneficiary.

47 Steve

Hi Mike,

One more on #6 from http://www.hrsdc.gc.ca/eng/learning/education_savings/publications_resources/promoter/tools/guide/032.shtml

In family plans, the following amounts could be available for a single beneficiary receiving an EAP from the plan:

* Accumulated Income
* All CESG amounts (includes Basic and Additional CESG)

I’m right at that point where I think I have extracted the EAP for one daughter and I have stopped withdrawing until the next daughter starts University.

48 Steve

Hi Mike,

me again. Same HRSDC site and I found this about promoter’s responsibilities re payments:

Inform beneficiaries, in writing, of the amount(s) of incentive(s) they are receiving with each EAP, and the obligation of beneficiaries to repay any CESG and CLB portion of an EAP to which they are not entitled to, including any portion of an EAP attributable to CESG that exceeds $7,200.

So now I see where they state you are not entitled to more than 7200 CESG EAP amounts, but I find that contradictory to ‘all CESG amounts’ are available for sharing.

Steve

49 Mike Holman

Hi Steve – one of the requirements for a beneficiary to be eligible for an EAP is that they haven’t received more than $7,200 in grants.

http://www.hrsdc.gc.ca/eng/learning/education_savings/publications_resources/promoter/tools/guide/032.shtml

See section 3.3

The RESP Promoter’s responsibilities include the following:

•Inform beneficiaries, in writing, of the amount(s) of incentive(s) they are receiving with each EAP, and the obligation of beneficiaries to repay any CESG and CLB portion of an EAP to which they are not entitled to, including any portion of an EAP attributable to CESG that exceeds $7,200.

(CESG refers to the RESP grant amount)

50 Steve

HI Mike,

Yeah I noted that in post 48, but I can’t (but obviously have to) reconcile all CESG amounts are available for sharing but elsewhere, not more than 7200.

So it looks like I have to stop withdrawing for daughter #1 since I am about to go over her CESG 7200 limit, and wait for daughter #2 this fall, to get the remaining CESG out, before resuming with Daughter #1 EAP withdrawals.
thanks for your help!.

Steve

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