RESP Withdrawal Rules: A Guide to Accessing Your Education Savings

Registered Education Savings Plans (RESPs) are great for families saving for their children’s post-secondary education. However, understanding the rules surrounding RESP withdrawals is important to maximize their benefits. Let’s explore the rules of RESP withdrawals.

Understanding RESP Withdrawals

RESP withdrawals are subject to rules set by the Canadian government and RESP providers. These rules ensure that RESP funds are used for their intended purpose: financing a beneficiary’s post-secondary education. Withdrawals can only be made to finance the beneficiary’s education expenses while attending a qualified post-secondary institution (universities, colleges, trade schools, and other eligible educational programs). Your savings can cover various costs, including tuition fees, textbooks, supplies, transportation, and living expenses while attending school on a full-time or part-time basis.

To start withdrawing from your RESP, the beneficiary must be enrolled in a qualifying educational program. This enrollment status must be verified through official documentation, such as a Verification of Enrollment (VOE) form.

Types of RESP Withdrawals

RESP withdrawals typically fall into two categories: Educational Assistance Payments (EAPs) and Post-Secondary Education Payments (PSEs). EAPs consist of the government grants and investment earnings accumulated in the RESP, while PSEs represent the contributions made by the subscriber (the person who opened the RESP).

Post-Secondary Education (PSE) Withdrawal These are your contributions (less any applicable fees), which can be withdrawn tax-free when your child enrolls into a qualifying post-secondary education or training program.

Educational Assistance Payment (EAP) is a withdrawal from your RESP meant to help pay for post-secondary education expenses like tuition, books and transportation. It’s made up of your accumulated grants, investment income and grant income, not your contributions. With EAPs you’re only allowed to withdraw up to $8,000 in the first 13 weeks of studying in a full-time program and $4,000 during the first 13 weeks of a part-time program.

Accumulated Income Payment (AIP) is used when your child is not currently enrolled in a post-secondary program. This form of withdrawal should only be considered if your child does not plan on pursuing a post-secondary education before the end of their RESP’s 35 year lifetime.

You can only receive an AIP as a Canadian resident if:

1. You’ve held your RESP for at least 10 years
2. Your child is at least 21 years old
3. Your child is not eligible for an Educational Assistance Payment (EAP)

In some cases, additional circumstances may be required to qualify such as:

1. Your plan has existed for 35 years
2. All of the beneficiaries are deceased

Non-Post-Secondary Education Withdrawal (NPSE)

If you choose to withdraw your contributions before your child enrolls in post-secondary school, the government will reclaim any grant money they contributed to your RESP as a result of that money being withdrawn. If you withdraw everything, they’ll take all your grants back and your RESP may be closed.

Some Common Withdrawal Scenarios

A child is going to school this year

1. Take EAPs first
2. Take contributions last

A child is not going to school this year but may go in the future

1. Don’t worry, once your child has enrolled in an eligible school your savings will be available for withdrawal.
2. When the time comes, review the withdrawal requirements section to make sure you have everything you need to access your funds

A child will never attend PSE

1. Contact an Education Savings Specialist to learn which form of withdrawal is best for you

Best Practices for Withdrawing from your RESP

Use up government grants and accumulated investment earnings first

A best practice to follow is withdrawing your EAPs in the first couple of years of school. This will allow the student to be taxed less in their first few years when they are likely to have no or a lower paying job. Waiting to withdraw your EAP until later years could cause the student to be taxed within a higher bracket if they qualify for a great internship or job opportunity while in school.

If you’re considering other forms of withdrawals, government grants, such as the Canada Education Savings Grant (CESG) and the Canada Learning Bond (CLB), have specific considerations that vary with the type of withdrawal. For example, CESG funds can only be withdrawn as EAPs. Contact your RESP provider or speak with your Embark Education Savings Specialist to make sure you’re making the best decision for you.

Don’t withdraw contributions before enrollment

Withdrawing your contributions before your beneficiary enrollment should only be done if absolutely necessary. Why? You could lose thousands of dollars in grant money. The government will claw back any funds contributed with the knowledge that the grants are no longer needed for their intended purpose – funding your child’s post-secondary education.

Withdrawing for non-education purposes? Try your RRSP or another RESP

If your need for withdrawal is anything other than post-secondary education – speak to an RESP specialist, or your Education Savings Specialist at Embark. It’s important to weigh your options to make the best decision. While each process has its own set of requirements that will have to be met, sharing the funds with another beneficiary or transferring your savings to an RRSP could be a better financial decision for your family.

Tips For a Smooth Withdrawal Process

Navigating the rules of RESP withdrawals can seem daunting, but with careful planning and understanding, families can make the most of their RESP savings. Here are some tips for navigating withdrawal rules effectively:

1. Plan Ahead – Start planning for RESP withdrawals well in advance of the beneficiary’s enrollment in post-secondary education. Understanding the rules and requirements early on can help avoid delays and ensure a smooth withdrawal process when the time comes.
2. Stay Informed – Stay up to date on withdrawal regulations issued by the government or your RESP provider. Keeping in-touch with your provider will also ensure you get the right guidance on navigating withdrawal procedures.
3. Document Verification – Make sure your Verification of Enrollment form is accurate, up to date (less than 6 months old) and on hand. This documentation is essential for accessing your savings.
4. Talk To Your Education Savings Specialist – If you’re unsure about the rules surrounding RESP withdrawals, talk to an Education Savings Specialist to make sure you’re ready to withdraw.