Nice work, parents! That hardworking kid of yours will soon be off to university and you can give yourself some credit, too. Not just because you took them to swimming classes every Saturday morning for years, and put healthy(ish) meals on the table, but because you had the foresight to set up an RESP way back when it had time to grow. And grow it did!
Now that it’s time for them to use their RESP, here’s what you need to know about withdrawing that money.
The first step is to provide proof of enrollment to withdraw Educational Assistance Payments (EAPs). EAPs are payments that include government grants, as well as investment earnings. Government rules specify that you can take out $5,000 of EAPs during the first 13 weeks of your child’s full-time post-secondary program. After that, EAPs can be as personalized as a tall, iced, sugar-free, half-fat vanilla latté. Students can withdraw EAPs as they need for their education-related expenses, until it's all used up.
Making a game plan for withdrawing RESP money
Whether your child is going to nursing school, chef school or studying biomedical engineering, the best advice we can give you is to use the EAPs first, before withdrawing your contributions . That’s because the EAPs are made up of grants and any earnings on the grants and contributions. And if they aren't used before the plan expires, any leftover grant money will have to be paid back to the government. (Your contributions are returned to you and if you qualify you can withdraw any remaining investment income.)
The other advice we give our customers is to withdraw EAPs gradually. This helps ensure that they don’t add up to significant amount of income in one year, so your child can minimize the amount of income tax payable with their tuition tax credits. Bonus advantage: Spreading out the withdrawals can also ensure your child doesn’t spend all the money in the first year on fancy sushi dinners.
You can choose how much and when to withdraw from an RESP
One of the great things about RESPs is you can withdraw the money in the way that most makes sense for you and your child, subject to government rules. You can choose how much to withdraw and when. The important thing to remember is that RESPs are flexible, and can be a dependable source of funds for your child during their post-secondary years. Speaking of dependability, CST Spark is here to answer any questions you have about withdrawing from an RESP, or about RESPs in general. So don’t hesitate to reach out at any time.
A few more things to ponder while enjoying a latté:
1. If you’re withdrawing from a family RESP…
You have the flexibility to divvy up the grant money among your kids, depending on who needs how much first. But no matter how you split the grants, make sure you’re not withdrawing more than each child is eligible to receive. In other words, make sure that you’re not withdrawing more than the $7,200 lifetime limit in grants for each kid. If you do, you'll do it, dare we say it, pay some of the grants back to the government.
RESPs offer great flexibility for families, even for families with kids who aren’t flexible at all about what vegetables they’ll eat.
2. If a beneficiary is enrolled in part-time studies…
According to the Canadian government’s rules, EAPs for students in part-time studies are limited to $2,500 for every 13-week period of enrolment.
3. If your child doesn’t go to school…
The good news is that your contributions are always returned to you and you may be able to withdraw the investment income the RESP if you qualify. The bad news is that you’ll have to pay back the government grants, because those were meant to go toward education. If your child doesn’t want a post-secondary education, there are other options worth exploring.
Still have questions about becoming a whiz on withdrawing?
As always, we’re here to help over the phone or live chat. Reach out to us Monday to Friday from 9:00AM to 7:00PM ET.
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