As you diligently save for your child’s post-secondary education, somewhere in the back of your mind is the nagging question: What if they change their mind and decide university just isn’t their thing? It can happen.
Maybe your child doesn’t want to go to a university or college, but is considering trade school, an apprenticeship, part-time or online courses or even a program at an international academy. That’s okay – keep in mind that a Registered Education Savings Plan (RESP) can be used to fund any form of post-secondary education that qualifies under the Income Tax Act (Canada).
But if your child just isn’t into studying further, that’s okay too. With an RESP, you have options. Here are a few of them:
1. Give them time
Kids change their minds. They may decide not to attend post-secondary education, but might have a change of heart a few years later. An RESP can stay open for up to 36 years. For beneficiaries eligible for the disability tax credit, an RESP can stay open for up to 40 years under specified plan rules. Knowing they have an RESP can help give them the confidence and security that they can pursue their passion once they find it.
2. Change your beneficiary
If you have more than one child, the RESP can be used to fund the education of another one of your children. You can usually transfer all or most of the amount—without tax consequences—to your other child if they are under 21 years. You can talk to your RESP provider to learn more about how this option works.
3. Get your contributions back, subject to investment risk, tax-free!
If you don’t have other children to transfer the RESP funds to, don’t worry. The Canada Education Savings Grant (CESG) or the Canada Learning Bond (CLB) will go back to the government, but you can get back your contributions, tax-free!
4. Transfer your money to an RRSP
You can withdraw your RESP contributions tax-free. If you qualify for an Accumulated Income Payment (AIP), you can transfer up to $50,000 of income earned in the RESP to your or your spouse’s Registered Retirement Savings Plan (RRSP) tax-free, provided there is contribution room there. Your RESP must be at least 10 years old and all your beneficiaries should be at least 21 years old and not attending post-secondary education. Read more about it here: Transferring RESP to RRSP. RESP income can also be transferred to a Registered Disability Savings Plan (RDSP), if there is enough contribution room and the plans share a common beneficiary. Conditions apply.
An RESP is an increasingly popular option among parents to plan for their child’s post-secondary education not only because it’s an effective way to save, but also because an RESP helps give you and your child options for the future.
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