If you are a parent or guardian who has diligently saved for their child’s future education with a Registered Education Savings Plan (RESP), the next important step may be withdrawing funds from it.
RESPs have long been recognized as an effective and tax-efficient means to save for postsecondary education, creating a bright future for your loved ones. However, understanding their withdrawal process may be complex due to various rules and guidelines that must be observed to maximize benefits.
With this comprehensive guide, you’ll learn all aspects of RESP withdrawals. Whether you’re approaching the milestone of funding your child’s education or simply looking to expand your knowledge on RESP withdrawal rules, this article will equip you with the knowledge and confidence to make informed decisions.
Join us as we unravel the mysteries of RESP withdrawals, and ensure your child’s educational dreams become a reality without any financial hurdles.
An RESP is a tax-advantaged investment vehicle specifically tailored to helping Canadian parents or guardians save for post-secondary education for their children. Through this government program, contributors may invest in mutual funds, stocks, bonds, and guaranteed investment certificates (GICs), all tax-free.
What sets RESPs apart is their access to government grants like the Canada Education Savings Grant (CESG), which offers additional funds based on contributions made. With the CESG and other grants, the savings can grow substantially over time, providing a solid financial foundation for a child’s future educational pursuits. As the child progresses towards higher education, the RESP can be used for qualified educational expenses, including tuition fees, textbooks, accommodation, and other educational necessities.
Anyone can contribute once the account has been opened. This includes grandparents and family friends. To contribute, you’ll need the beneficiary’s social insurance number. You can gift the money on behalf of the plan member if they are not comfortable with sharing this information.
The federal government can provide money to beneficiaries in addition to money contributed by the subscriber. The grant money can be taken away if your child doesn’t use the RESP to pay for post-secondary school. There are two federal grants that you can apply for:
The government will match 20 percent of your donations (up to $500 annually) through the Community Enhancement Support Grant (CESG), but in order to qualify for a full grant you must contribute at least $2,500 every year. Don’t worry if you don’t have all the money right now to contribute all at once. Contributions can still be spread out throughout the year if that works better for you. Any unused contribution space is carried over to the following year.
But what is the amount of money that the government contributes to a RESP? The CESG offers a lifetime limit of 7,200 per beneficiary.
The Community Learning Bank (CLB) provides up to $2,000 of financial aid for low-income families to assist them in meeting postsecondary education expenses. All children born after 2004 are eligible.
You can withdraw money from your RESP in several ways. Keep in mind that the money in your RESP belongs to you, and not the beneficiary. The subscriber must consent to withdraw money from an RESP.
Two documents are required to withdraw your request:
- Proof of enrollment in a post-secondary institution.
- The withdrawal form must be signed by the subscriber and can be obtained from the financial institution holding your RESP.
You may need to wait a while before you can complete your withdrawal. Note the dates of the tuition due in advance so you don’t have to scramble to withdraw the funds from your RESP.
There are two types of RESP withdrawals and they have different tax implications:
The RESP is funded by investment income and government grants, so the beneficiary must report the withdrawals as income in their tax return.
The federal budget for 2023 has recently changed the rules regarding RESP withdrawals. So, here’s how EAP withdrawals are handled:
- After the student has enrolled full-time in a post-secondary course they can withdraw from their RESP.
- The student may withdraw up to $8,000 as EAPs during the first 13 weeks. Students can withdraw up to $4,000 if it is a part-time course.
- There are no restrictions on how many EAPs a student can withdraw after 13 consecutive weeks.
The subscriber’s base contribution to the RESP is used as the basis for the payment of post-secondary education. This does not include any income from grants or investments.
The beneficiary is not taxed on PSE payments because these contributions are already taxed. Unlike EAPs, the amount of PSE contribution that can be withdrawn in one go is not limited.
An RESP is an invaluable tool that empowers Canadian parents and guardians to save for their children’s higher education while enjoying significant tax benefits. Through the combination of tax-free growth and government grants, RESPs offer a powerful means of securing a brighter future for our loved ones. By understanding how RESP contributions work, the available government grants, and the potential for tax-free growth, parents can make informed decisions and optimize their savings strategy.