Making RESP withdrawals

The registered education savings plan is an attractive tool for building up capital to cover your child’s post-secondary education. It not only shelters your contributions from taxes for many years as they grow, but also provides access to grants that can amount to several thousands of dollars. 

But one fine day, the time will come to withdraw this money. Are some ways of doing this more advantageous than others?

The central factor: taxes

To answer that question, it’s important to remember that the funds held in an RESP are divided into two main categories, as shown in the following diagram. 

Your total contributions belong to you. You can withdraw that money tax-free and use it for anything you want – including to cover your child’s financial needs while he or she is still in school.

On the other hand, the total grants received and the accumulated investment income, when withdrawn, are classified as “education assistance payments” or EAPs. This money goes to the beneficiary, i.e., your child, and is taxable in his or her hands.

The basic strategy

The main objective is to minimize the tax payable so as to end up with as much money as possible for your child’s education. 

As a general rule, the best approach would be to start withdrawing the EAPs at the beginning of the child’s post-secondary program and to spread the withdrawals over several years. At this time of your child’s life, his or her income will very likely be in the lowest tax bracket. In fact, the tax payable might be nil if the child’s income is less than the basic personal tax credit (this basic personal amount varies by province; at the federal level, it was $15,075 in 2024). It’s also important to note that your child’s student status could provide eligibility for benefits that would increase his or her income while you, on the other hand, might lose certain child tax credits.

You could start withdrawing your contributions at the same time or leave that money in the RESP to continue growing in a tax-sheltered environment.

Important amounts and time limits

The initial EAP withdrawals are limited to a maximum of $8,000 in the first 13 weeks after enrolling in a full-time educational program, or $4,000 for a part-time program. In theory, there is no withdrawal limit after the initial 13-week period. In practice, though, if annual withdrawals exceed a certain threshold, the government can ask you to demonstrate that the expenses are reasonable. In 2024, this threshold was $28,122.

There is also a prescribed deadline for requesting EAPs: six months after the child’s studies end (i.e., after he or she ceases to be enrolled as a student). At that point, the EAPs must stay in the RESP, which could lead you to consider other withdrawal strategies. More on that later.

Note that the withdrawal of your contributions is also linked to your child’s enrolment in a qualifying educational program. If you make a withdrawal before your child has enrolled in a qualifying program, you might have to pay back any grants received, in proportion to the amount withdrawn.

Finally, be aware that an RESP must be closed before the end of the 35^th year after it was opened.

Other strategic elements

Ideally, you will have withdrawn everything from the RESP before your child has finished school. But what happens if funds remain in the RESP after your child’s education is completed, or if your child simply doesn’t go to post-secondary school? Here are the main ways to approach this situation.

• Wait 
  The RESP can stay open for 35 years, even if the beneficiary is not pursuing post-secondary studies.  

• Transfer the RESP to another student  
  If you have another child under the age of 21, you could transfer the balance of one child’s RESP into the other child’s RESP, with no tax implications. However, you would have to watch that the contributions and grants included in the transfer wouldn’t exceed the second child’s RESP contribution limits.

• Transfer to a registered disability savings plan (RDSP) 
  This could be an option if both plans have the same beneficiary. A number of other conditions would also apply. 

• Transfer to an RRSP  
  You could transfer up to $50,000 into your RRSP, providing you had enough contribution room. You would have to repay the government grants, though, along with any investment income they had generated. 
  

• Withdraw the balance  
  Lastly, you could withdraw the balance of any accumulated investment income, which would then be considered an accumulated income payment (AIP). This AIP would be added to your taxable income for the year, and would also be subject to an additional 20% tax (12% for residents of Quebec). On top of that, all grants would have to be fully repaid to the government, along with any associated investment income. It goes without saying that this is the most costly option: it would cancel out virtually all of the benefits of an RESP.

Of course, various terms and conditions apply to each strategy and these may differ depending, for example, on whether it’s an individual or family plan. Your advisor can provide you with more details and help you set up an appropriate strategy for your situation.