Understanding Your RESP
September always brings about a feeling of re-set or renewal; it means back to school for kids or the starting of post-secondary studies. RESP funds can be used for tuition, accommodations, books or other costs connected to a young adult’s education. Many of you have been depositing funds into your child’s RESP for years, so what do you need to know about accessing the funds?
As with all Registered Plans, there are a few rules when it comes to the moment you need to start using the funds:
- You will need proof of enrollment into an eligible post-secondary institution. All institutions have documents you can request or access to confirm enrollment, as that confirmation needs to be submitted with the request forms to withdraw funds. These can usually be accessed through student portals or by emailing registrars.
Eligible institutions can be an apprenticeship programs, university, college, nursing schools, teacher training, and some private institutions. The institution can be local, across the country, and even out of country.
You can view the list of eligible institutions on the Government of Canada website:
- RESP funds have two components - PSE (post-secondary education payment) which are funds personally contributed, and EAP (educational assistance payment), which are grant and or bond monies the government contributed. PSE funds can be withdrawn tax-free, while the EAP is the growth or earning on the EAP funds. All funds withdrawn from the EAP component of the RESP are considered taxable income. Typically, this not a significant impact as it is taxable in the beneficiary’s name (the adult student), and they are likely in a low- or no-income tax situation - but it is something to be aware of depending upon your circumstances.
- How much can you withdraw? For a full-time student the EAP limit is $5,000 in the first 13 week of schooling. After the first 13 weeks additional EAP amounts can be accessed. If it is a part-time program the limit is cut in half to a maximum of $2,500 for the first 13 weeks. For PSE withdrawals there are no limits to the structure of using those funds.
- As you continue to access the RESP and withdraw funds you will want to be aware of the remaining funds in each of the components mentioned above. Utilizing the EAP dollars, prior to utilizing the PSE monies is recommended, as unused EAP dollars have to be repayed, while your contributions (the PSE monies) are yours to keep.
- When closing an RESP there are a few things to consider An RESP can stay open for 35 years, so your student has time to decide on their studies – it can be used for later post-secondary studies or post-graduate studies. You may want to set up a family RESP to have multiple beneficiaries to direct the funding to, incase one beneficiary elects not to continue their education. There is the option to get your investment earnings out of an RESP but the account must be opened for 10 years and the beneficiaries must be at least 21 and not currently continuing post-secondary education.
Contributing to an RESP requires forethought, as well as many years of budgeting and planning. Ensuring you are managing your withdrawals efficiently and effectively is important so that your adult student is set up in the best way possible and you are mindful of any tax implications. There are additional nuances to RESP management depending upon your situation, therefore it is important to reach out to your advisor to learn more.