How to Withdraw from a RESP

What is an RESP?

An RESP is a long-term savings plan in Canada to help parents and guardians save for a child’s post-secondary education. If the school and program are eligible for an RESP, the benefits can be used to pay for your child’s tuition, books, tools, transportation, and rent.

As an eligible adult (also called a “subscriber”), you can open an RESP with a financial organization (known as a “promoter”) for the following beneficiaries:  

• Your own child
• Someone else’s child, including a grandchild, niece, nephew, or friend’s child
• Yourself or another eligible adult

Depending on your situation, you can choose between three types of Registered Education Savings Plans (RESPs). Let’s take a look at these plans in greater depth.

3 government benefits of Registered Education Savings Plans

There are 3 different RESP plans offered by the government. Here are the specifics on each:

1. Canada Learning Bond (CLB)

The CLB offers financial support to eligible children from families with low income. You are not required to make contributions to the RESP to access the Canada Learning Bond.

Your beneficiary receives $500 in the first year and then another $100 each year until they reach the age of 15, up to a lifetime maximum of $2,000. Adults born in 2004 or later can also receive the CLB until the age of 21. 

To qualify for the CLB, you must be eligible to receive the Canada child benefit (CCB) as the primary caregiver of the beneficiary.

2. Canada education savings grant (CESG)

To receive this government grant, subscribers have to contribute to their RESP. The CESG then adds a percentage of the contributions—up to 20% of the first $2,500. The maximum amount of a CESG is $500 each year until the beneficiary turns 17, up to a lifetime maximum of $7,200. 

Children from families with middle- or low-income levels receive an additional amount of up to $100 annually.

3. Provincial benefits of British Columbia and Québec

In addition to federal RESP benefits, British Columbia residents are eligible for a one-time, provincial amount of $1,200 under the BC Training and Education Savings Grant (BCTESG). 

Québec also offers a provincial benefit under the Québec education savings incentive (QESI) which encourages families to start saving early for their child’s post-secondary education. Each year, this refundable tax credit offers an amount equal to 10% of your yearly RESP contributions—up to a maximum of $250. To help low-income and middle-income families, QESI gives an additional amount of up to $50 per year.

How much money does the government contribute to an RESP?

Here’s a breakdown of how much money government benefits add to your RESP.

What are the different types of RESP withdrawals?

Money in an RESP comes from contributions made by you (the subscriber), benefits received from the government, and interest accumulated on the money in the RESP. 

Because of these different sources, there are different types of RESP withdrawals:

1. Educational assistance payment (EAP)

An EAP includes money from government benefits and accumulated interest. The beneficiary receives this amount from an RESP to finance the cost of their post-secondary education. Since EAPs are income for the students, those students must include the amount on their income tax and benefit return.

2. Accumulated income payment (AIP)

If your beneficiary does not use RESP interest through an EAP, it can be paid out as an AIP to you. If you are entitled to receive AIPs along with other subscribers, the payments are made separately to each person, with no provision for joint payments.  

3. A withdrawal of contributions 

Being a RESP subscriber, you can request a withdrawal of your contributions. Subject to the terms and conditions of the RESP, these contributions can be returned tax-free when the contract ends or anytime before then. You may also choose to give these withdrawn funds to your beneficiary.

What are the RESP withdrawal rules?

Before you start withdrawing money from an RESP, you should be aware of the following rules to get the most out of your EAP funds.

1. Enrol in an eligible post-secondary school

Your beneficiary must be enrolled in any of the following post-secondary educational institutions:

• Universities, colleges, or other designated educational institutions in Canada
• Educational institutions in Canada certified by Employment and Social Development Canada (ESDC)
• Universities outside of Canada (the course should last for at least 3 consecutive weeks)
• Colleges or other educational institutions outside of Canada (the course lasts for at least 13 consecutive weeks)

2. Provide official documents to the promoter

You have to show official proof of enrolment to the promoter—the financial organization where you open the RESP. The promoter will then provide a list of allowable expenses or ask for receipts for school purchases to prove the funds are being spent on eligible expenditures.

If the expense is in accordance with the Income Tax Act and the terms of the RESP plan, it is considered reasonable.

3. Check program length for withdrawal amount

The amount of RESP withdrawal depends on the length of your child’s program.

If you need to withdraw more money than these limits, you can make a request to Employment and Social Development Canada (ESDC) with the help of your RESP promoter.

Can you withdraw from an RESP anytime?

While you can contribute to a Registered Education Savings Plan until 31 years after you open it, you have until the end of the 35th year to withdraw the funds before the RESP expires. 

In the case of EAP withdrawals, a beneficiary can receive the funds for up to 6 months after their enrolment ends. This provision is possible only if the expenses would have also qualified before the enrolment stopped.

What happens to the unused RESP amount?

If the beneficiary does not pursue post-secondary education, you have the following options:

1. Keep the RESP open in case the beneficiary decides to attend post-secondary school later
2. Replace the beneficiary
3. Transfer the funds to other registered savings plans
4. Transfer the money to another RESP
5. Close the RESP to receive your contributions and accumulated interest

Note: If you decide to transfer or close the RESP, money received from grants is returned to the Government of Canada.

Are RESP contributions tax deductible? 

The answer is no—parents or guardians diligently contributing to an RESP cannot get a tax deduction for the money they contribute. 

Let’s look at the nuances of taxation rules for RESP withdrawal. 

If the RESP is used for education:

• Interest earned on your contributions is tax-free as long as it remains in the RESP. 
• When EAPs are paid, money is taxed in the hands of the student and reported on a T4A Tax slip. Since many students don’t have much income during their studies, they generally pay little to no tax when receiving an EAP.

If the RESP is not used for education: 

• Contributions are returned to the subscriber tax-free. 
• AIPs are taxed at the subscriber’s regular income tax rate, plus an additional 20% (12% for residents of Québec).

If you transfer money from an RESP to a registered retirement savings plan (RRSP):

• A transfer of up to $50,000 of earnings is allowed tax-free using an AIP.

If you transfer money from one RESP to another RESP:

• There is no tax implication if the transferring and receiving RESP have the same beneficiary. 
• There are also no tax implications if the transferring and receiving beneficiaries are siblings.

Interestingly, there is a tax penalty for over-contributions to an RESP in Canada. The maximum RESP contribution limit over the account’s lifetime is $50,000 per beneficiary. If you exceed this cap, you will have to pay a 1% monthly tax on the excess amount until it is withdrawn.