Understanding Accumulated Income Payments (AIP) in RESPs

An Accumulated Income Payment (AIP) is an option for you to withdraw your registered education savings plan (RESP) income when the beneficiary is not pursuing post-secondary education and has no intention of doing so before the RESP termination date. In other words, your child isn’t going to a designated educational institution and you want to take the income earned out of the RESP.

What kind of income can be withdrawn as an Accumulated Income Payment?

You can make a RESP withdrawal not for education, with money that was generated by investment gains, but you can’t take out government grants. Once an AIP is requested, the government grants are sent back to the government. For that reason, it’s important to make sure that the beneficiary is definitely not going to attend post-secondary school (not even in the future) before requesting an AIP.

When can an AIP be requested?

As a Canadian resident, you can receive an AIP under the following conditions:

1. The beneficiary does not qualify for Educational Assistance Payments

• You have held your RESP for at least 10 years
• Your student is at least 21 years of age
• Your student is not eligible for Educational Assistance Payment (EAP)

2. The beneficiary is a deceased individual

You can also receive an AIP if:

• Your plan has existed for 35 years; or,
• All the beneficiaries are deceased.

If you do not qualify under any of these conditions, ask us how to apply to the Canada Revenue Agency for an exemption for your specified plan on your behalf.

How do I withdraw funds from your Registered Education Savings Plan as an AIP?

If you would like to withdraw funds from your RESP as an Accumulated Income Payment, you have two options:

Option 1: Withdraw the AIP as income

When you withdraw an AIP, it becomes taxable income that you’ll need to declare on your income tax return for the year that you make the withdrawal.  It’s important to know that AIPs are taxable and must be included on your income tax return in the year the funds are received.

AIP amounts paid are also subject to an additional tax of 20%, known as a withholding tax, which means that we are required by the Canada Revenue Agency (CRA) to remit a portion of the interest earned when you make the withdrawal.

To withdraw AIP as income:

1. Contact Embark (or your RESP provider)
2. Complete the Request for Accumulated Income Payment form (ensure all subscribers to your RESP sign the form)
3. Follow steps to submit request with your provider

Option 2: Transfer the AIP directly to your registered retirement savings plan (RRSP) or spousal RRSP

You can reduce the amount of tax you need to pay with an AIP-to-RRSP Transfer. You can contribute up to $50,000 directly to your RRSP (or an RRSP for your spouse), provided you have enough unused RRSP contribution room. By transferring your RESP to your RRSP, you can deduct this amount from your taxable income when you report your taxes for the year, resulting in lower tax payable.

To transfer an AIP into your registered retirement savings plan RRSP:

1. Contact Embark (or your RESP provider)
2. Complete the Request for Accumulated Income Payment form (ensure all subscribers to your RESP sign the form)
3. Complete the Tax Withholding Waiver on Accumulated Income Payments from RESPs (T1171) form (ensure all subscribers to your RESP sign the form)
4. Complete submission steps outlined by your provider

How to avoid or minimize taxes

To avoid taxes, the original subscriber may also opt for a non-AIP disbursement by:

• Transferring RESP contributions to another RESP beneficiary to use toward college or university.
• Pay an EAP to help pay for the child’s university or college at RESP eligible schools.
• Keeping the RESP open in case the beneficiary decides to attend school in the future.

Further, early RESP withdrawals help prevent large AIP sums by depleting investment income before the plan closes. Withdrawing EAPs early minimizes taxable AIP later, as students are usually in a lower tax bracket. Ultimately, strategic withdrawals will maximize tax efficiency and minimize financial losses for the subscriber.