An RESP, or “Registered Education Savings Plan,” is a Canadian government-regulated investment account designed specifically to help save for post-secondary education expenses.
RESPs are made up of contributions, grants and grant income. RESP money can be invested in various financial products, based on your needs, desires, and what your financial advisor recommends. Unsurprisingly, a lot of Canadians choose to invest in an RESP!
But, as with any financial plan, there are a lot of twists and turns that your child or grandchild may be faced with when they are on the road to post-secondary school. An RESP can help them pay for their education and allow them to focus on just being a student – but what if you need to end an RESP? What if they don’t want to go to school or finish without using all of their RESP? How do you close an account, and what happens if you do? In this article, we’ll explain.
Reasons to Cancel Your Registered Education Savings Plan
There are several reasons as to why one might consider collapsing an RESP. Note that, with each cancellation listed below, specific rules and regulations could apply. We recommend consulting with an Embark Education Savings Specialist or your RESP provider to understand the implications and options that come with closing an RESP.
Intended Beneficiary Does Not Attend Post-Secondary
If the intended beneficiary does not pursue a post-secondary education or “higher education,” then the RESP can be closed. If this is the case, the RESP net contributions are returned to the subscriber. The accumulated investment earnings are subject to special taxation rules and , grants may be returned to the government.
Financial Difficulties or Personal Reasons
Sometimes, life happens. A subscriber may choose to terminate their RESP prematurely in this case. They may do so due to changes in circumstances, financial difficulties, or other reasons. Early termination can, however, result in penalties, taxes, and even loss of grants.
Transition to Another RESP
Should the subscriber decide to transfer the funds from one RESP to another, then they complete the transfer paperwork through the new RESP provider and the RESP account will be closed after the transfer is complete.
RESP Fully Utilized
After the beneficiary has completed their education, and the RESP money in the account has been entirely withdrawn, then the account may be closed.
The Steps for Closing Your RESP
An RESP is all about creating a plan for the future, and if that future changes, then so should the plan. Closing an RESP involves several steps to ensuring a smooth process.
Review the Plan Carefully
Carefully go through the terms and conditions outlined in the RESP plan agreement you have with your provider. This is crucial to help you understand any potential penalties, fees, or restrictions associated with closing the account before you decide to proceed.
Contact Your RESP Provider
Reach out to Embark or your RESP provider, either by phone, email, or online, to initiate the account closure process. Make sure to provide your account information, including the account number and the name of the subscriber (account holder).
Verify Your Identity and Documentation
Your RESP provider may require you to provide identification to verify your request as the account holder. This could include submitting a copy of your government-issued ID or other requested documents, such as a signed cancellation letter.
Determine the Education Status of Beneficiary
Confirm whether the RESP beneficiary has started or completed their post-secondary education. This information is essential as it affects the eligibility and taxation of the accumulated funds.
Choose a Withdrawal Option
Chat with your provider about the available withdrawal options. Depending on the circumstances, you may have choices such as requesting a lump-sum withdrawal of net principal, transferring income to a registered retirement savings plan (RRSP), or attributing another beneficiary to the plan. Each option will have varying tax implications, so make sure you understand the potential penalties.
Complete Withdrawal Forms and Submit Request
You may be provided with withdrawal forms to initiate the closure or a signed cancellation letter might be requested. Make sure to fill out all the required information. Once you have completed them, submit them to your RESP provider as instructed. Ensure you follow any specific submission guidelines and deadlines provided by your provider.
Review and Confirm Your Closure Details
Make sure to carefully review the closure details provided by your RESP provider. This may include the final account balance, withdrawal amount, applicable taxes, fees, and any remaining grants or investment income that will need to be allocated appropriately.
Receive Closure Confirmation
After processing your withdrawal request, your provider should send you a confirmation notice. This notice will outline the final account closure details, including the disbursed funds and any relevant tax information. You’re done!
RESP Cancellation: FAQ’s & More
How do you close a RESP account?
To close an RESP, as mentioned in the steps above, you must:
- Review the plan agreement to understand any penalties or restrictions.
- Contact your RESP provider to provide account details.
- Verify your identity as the account holder.
- Determine the education status of the beneficiary.
- Choose a withdrawal option.
- Complete the required information requests and submit it to your provider.
- Review the closure details and then receive confirmation of the account closure.
Do you lose money when you close a RESP account?
There is always the possibility that you may lose money when you close an RESP account depending on the terms and conditions of the account. This could be penalties, fees, or taxes that could impact the final amount you would receive. We highly advise reviewing the plan agreement and then consulting with your provider to understand potential financial implications before you ultimately decide to close the account. There are often options available to you to help ease the tax burden of closing an account, like transferring your income to an RRSP.
When does an RESP have to wrap up?
Usually an RESP must wrap up within 35 years of it being opened.
Embark is Canada’s education savings and planning company. The organization aims to help families and students along their post-secondary journeys, giving them innovative tools and advice to take hold of their bright futures and succeed.
