You’ve saved and planned for this day, and it’s almost here: In a few short weeks your son or daughter will be heading off for their first year of post-secondary education. And now it’s time to tap into the investments held in the Registered Education Savings Plan (RESP) you diligently built for so many years – and that should take some careful thinking because you have decisions to make about how you withdraw your RESP funds to best take advantage and get the full benefit of Educational Assistance Payments (EAPs), which consist of the Canada Education Savings Grant (CESG) 1., the Canada Learning Bond (CLB) and the income you’ve invested in the investments within the RESP.
Know your withdrawal options. Once your child is enrolled in an eligible program and as the plan subscriber, you can withdraw plan contributions tax-free and use them any way you wish – to support your child or even for your personal purchases.
Know your limits. In most cases, the government restricts the withdrawal of plan income EAPs to a maximum of $5,000 in the first 13 weeks of your child's qualifying educational program. In some cases, the limit may be $2,500 per 13-week period. EAPs must be used to ‘further’ your child’s post-secondary education and can include tuition, school/student fees, textbooks and even ‘reasonable’ costs for moving, rent, food, and transportation.
Get government permission. You can request the permission of the Minister of Employment and Social Development Canada to exceed the $5,000 or $2,500 limits on plan withdrawals. Make your request in writing and send it in as early as possible.
Avoid paybacks. If there is any money received remaining in your plan after your child's post-secondary program has been completed, you may be required to refund some of the CESG monies your plan had received. To avoid any potential CESG paybacks, be sure to deplete your plan's earnings first.
Take advantage of left-over contributions. Any contributions remaining in the plan after your student finishes college or university are yours to use as you wish – transfer them to another child’s plan or withdraw them for personal use.
Be tax-savvy. Remember that earnings withdrawn from your plan will be taxed as part of your child's income. This could be a tax advantage if your child's income is low because these earnings could be effectively tax-free.
Education is expensive - and getting more so by the day. An RESP vehicle is the vital foundation of a well-funded post-secondary experience. But, there are other steps you can take to ensure your financial stability and achieve a debt-free education for your children. Your professional advisor can provide a critical helping hand every step of the way.
1Canada Education Savings Grant is sponsored by Human Resources and Skills Development Canada.
This column, written and published by Investors Group Financial Services Inc. (in Québec – a Financial Services Firm), and Investors Group Securities Inc. (in Québec, a firm in Financial Planning) presents general information only and is not a solicitation to buy or sell any investments. Contact your own advisor for specific advice about your circumstances. For more information on this topic please contact your Investors Group Consultant.