When the time comes to withdraw from your RESP, most people have many questions. There are a few things to keep in mind when you wish to withdraw money for your student. Watch our video below to learn more:
First, let’s review some of the terminology.
When making contributions to your RESP, most people will earn CESG – Canada Education Savings Grants. That’s the 20% grant the government applies to certain contributions. When you withdraw from the RESP, the grants and the growth are described as EAP – Educational Assistance Payments. Both the grants and the growth are taxable when withdrawn.
There is another portion of the RESP called “Post-Secondary Education” withdrawal, or PSE. This is comprised of your contributions, and is not taxed when withdrawn.
A third term you should be familiar with is a “Proof of Enrollment”. This is needed every time your student makes a withdrawal from the RESP. It must include:
- the student’s full name
- the name of the institution they are attending
- the semester start date
- the year of the program and other information
There are many acceptable proof of enrollment documents, but most commonly we receive a letter from the registrar, an official timetable, or a tuition invoice. A letter of acceptance does not provide valid proof of enrollment.
There are limits on the EAP that can be withdrawn when your student begins their post-secondary program, and these depend on the qualifying time your student is enrolled for. However, once your student is enrolled, there are virtually no limits on how much of your contribution you can withdraw.
It is helpful to try to anticipate how likely your student is to earn additional income throughout their post-secondary careers.
When you withdraw EAP on behalf of your student, this money is taxable to them. We find that generally students will work less in their first two years of study as they often will be trying to get a handle on what university life is like.
In years where your student is earning less income, it may be beneficial to focus on withdrawing the taxable portion of the RESP. Additionally, should your student complete their studies and not need the full value of the RESP, it is much easier to withdraw your own contributions than it is to withdraw remaining grant and growth.
Knowing how to effectively use your RESP is not something you need to manage on your own. Providing the information discussed to your advisor will help us create a strategy for you to help minimize taxes and maximize the benefit of your RESP. For information please contact us.