RESPs Part two:

when it is time to withdraw

Post-Secondary Enrolment (Or Not)

5 – 7 minute read

Once the beneficiaries of Registered Educations Savings Plans (RESPs) have graduated high school and enrolled in university, college, or another post-secondary institution, contributors are able to request, on behalf of the beneficiary, to withdraw funds. Then finally—after years of saving—those funds can be allocated towards education expenses such as tuition, textbooks, transportation, and equipment. 

The Logistics of Withdrawals

As mentioned in RESPs Part One: Starting an RESP, total funds contained within these savings plans may include individual contributions made by plan sponsors, government grants, and/or interest earned from investments.

A graphic indicating the different sources of RESP funds: sponsors, government grants, and interest from investments.

As such, any withdrawal of government payments or interest earned from RESP investments is referred to as an Educational Assistance Payment (EAP). The chunk of EAPs generally consist of any CESGs (Canada Education Savings Grants) or CLBs (Canada Learning Bonds) as well as interest acquired. EAPs are limited to a maximum of $5,000 during the first 13 weeks of consecutive enrolment. 

It is important to note here that beneficiaries are eligible to receive the CESGs up to a lifetime maximum of $7,200. It is the student’s responsibility to track the total amount of grant money received. Any amount utilized that exceeds the allotted lifetime maximum must be returned.

On the other hand, individual contributions can be withdrawn at any time for any amount to fund a beneficiary’s education. So, how exactly do contributors withdraw funds from their savings accounts?

To withdraw funds from an RESP, contributors must contact their plan provider (such as a bank, wealth manager, or other financial institution) and present an official document that states the student’s proof of enrolment at an educational institution (university, college, trade school, etc.). This certificate can be obtained directly from the institution at hand. 

In addition to the proof of enrolment, the RESP sponsor will often provide beneficiaries with a list of approved expenses for which funds within the savings account can be designated. These will often include items directly related to the educational institution such as tuition and textbooks, but other eligible expenses may also consist of car payments (gas, insurance, parking, maintenance), meals, and rent.

In the event that a plan provider chooses to audit whether RESP funds are used towards allowable expenses, beneficiaries must ensure that they keep a record of all transactions. 

Alternatively, RESP beneficiaries may choose not to enrol in post-secondary institution. What happens then?

If the Beneficiary Does Not Continue Their Education

In the event that an RESP is set up for a beneficiary who does not wish to enrol in further education, contributors have the following options on how to deal with the saved funds:

1. Leave the savings in the RESP.

Contributors can leave the RESPs open just in case the beneficiary wishes to attend an education institution one day in the future. In fact, these types of savings accounts can be left open for 36 years. If an RESP remains active, the named beneficiary has the option to pursue higher education and fund relevant expenses through their savings plan. 

2. Replace the beneficiary named on the RESP.

The ability of contributors to transfer the named beneficiaries on their savings accounts is dependent on the type of RESP selected—this must be one of three options: individual (non-family) plan, group plan, or a family plan.

Under an individual (non-family) plan as well as a group plan, depending on the structure of the RESP as outlined by providers, contributors may have the option to name another beneficiary. However, this amendment may be subject to fees.

Alternatively, in a family plan (since there is often more than a single beneficiary covered) contributors have the ability to transfer any untouched funds to an alternative beneficiary named in the savings account. For example, if a parent opened up an RESP for their son and daughter and only the daughter went to university, the parent would have the option to transfer all funds originally intended for their son to their daughter’s account instead.

3. Transfer the funds into another savings account (like an RRSP).

Contributors have the ability to move any unallocated funds up to a maximum of $50,000 tax-free from their RESP to the RRSP. However, there are a few eligibility restrictions that apply to this transfer, including:

      • The RRSP must have been open for at least 10 years.
      • All the beneficiaries under the RESP are over the age of 21 and are not currently enrolled in a post-secondary education institution.
      • There is room in your RRSP for additional contributions.
      • The policies under your RRSP must explicitly allow for an RESP transfer to occur.

4. Close the RESP.

If the event that a plan contributor wishes to completely close their savings account, the three types of funds within the RESP (individual contributions, government grants, and interest acquired) will be distributed accordingly:

      • Individual contributions are not taxed as income and these funds would therefore just be returned to your selected deposit account. The total contribution amount that you have accumulated through years of saving will be returned in full.
      • Government grants such as the CESG and the CLB must be returned to government in totality. These funds are solely intended for educational purposes, and failure to send the funds back may put contributors at risk. 
      • Interest acquired through investment in an RESP is eligible for withdrawal as long as the account has been open for at least 10 years and all beneficiaries under that plan are over the age of 21. However, this interest will be subject to income tax as well as reported on the plan contributor’s T4 come tax season.

Important Considerations

In order for RESP amounts to be used towards funding a beneficiary’s education, the length of study must meet the government’s minimum duration of a qualifying education program. This means the program must be one of the following: a full time-program in Canada, a full-time program outside of Canada, or a part-time program in Canada.

A full-time program in Canada is considered to be a course of study that lasts at least three consecutive weeks with a minimum of 10 hours of instruction or work performed each week.

Alternatively, a full-time program outside of Canada is one led by a foreign educational institution with a duration of at least 13 weeks.

Lastly, a part-time program in Canada is one that lasts three consecutive weeks and requires participants to spend more than 12 hours of study per month on course contents. If an educational program does not meet any of the aforementioned requirements, it will not be eligible for educational expenses.

A smiling young adult in a graduation cap and  stole. He likely funded his university experience with an RESP

In Conclusion…

An RESP is an excellent, tax-efficient way to save and set goals for the future. It is crucial that potential contributors seek advice from financial experts like those at Qube. Our team has knowledge on proper plan administration, tax expertise, and CRA guidance. We can counsel you on contribution amount maximums and plan eligibility—decisions that require thorough expertise. If plans are implemented without proper consideration, you could put yourself at risk of tax restitutions.

Individuals who are seeking to utilize an RESP in funding their beneficiaries’ education will benefit from the services of a Portfolio Manager. If you would like to learn more, reach out to us by email or call (780) 463-2688.

DISCLAIMER

Qube Investment Management Inc. has authored the material presented above for the promotion of financial literacy and professional development. Qube makes no warranty for the accuracy, validity, or completeness of the above information. It is not intended to provide specific advice with respect to individual financial, investment, tax, legal or accounting matters.

 For advice specific to your situation, consult appropriate investment, legal or accounting professionals.

PLANNING FOR YOUR INVESTMENTS SHOULD NOT BE OVERWHELMING.

Book a quick chat with us to see if we can help you plan for your goals.

RESPs Part two:

when it is time to withdraw

Post-Secondary Enrolment (Or Not)

5 – 7 minute read

Once the beneficiaries of Registered Educations Savings Plans (RESPs) have graduated high school and enrolled in university, college, or another post-secondary institution, contributors are able to request, on behalf of the beneficiary, to withdraw funds. Then finally—after years of saving—those funds can be allocated towards education expenses such as tuition, textbooks, transportation, and equipment. 

The Logistics of Withdrawals

As mentioned in RESPs Part One: Starting an RESP, total funds contained within these savings plans may include individual contributions made by plan sponsors, government grants, and/or interest earned from investments.

A graphic indicating the different sources of RESP funds: sponsors, government grants, and interest from investments.

As such, any withdrawal of government payments or interest earned from RESP investments is referred to as an Educational Assistance Payment (EAP). The chunk of EAPs generally consist of any CESGs (Canada Education Savings Grants) or CLBs (Canada Learning Bonds) as well as interest acquired. EAPs are limited to a maximum of $5,000 during the first 13 weeks of consecutive enrolment. 

It is important to note here that beneficiaries are eligible to receive the CESGs up to a lifetime maximum of $7,200. It is the student’s responsibility to track the total amount of grant money received. Any amount utilized that exceeds the allotted lifetime maximum must be returned.

On the other hand, individual contributions can be withdrawn at any time for any amount to fund a beneficiary’s education. So, how exactly do contributors withdraw funds from their savings accounts?

To withdraw funds from an RESP, contributors must contact their plan provider (such as a bank, wealth manager, or other financial institution) and present an official document that states the student’s proof of enrolment at an educational institution (university, college, trade school, etc.). This certificate can be obtained directly from the institution at hand. 

In addition to the proof of enrolment, the RESP sponsor will often provide beneficiaries with a list of approved expenses for which funds within the savings account can be designated. These will often include items directly related to the educational institution such as tuition and textbooks, but other eligible expenses may also consist of car payments (gas, insurance, parking, maintenance), meals, and rent.

In the event that a plan provider chooses to audit whether RESP funds are used towards allowable expenses, beneficiaries must ensure that they keep a record of all transactions. 

Alternatively, RESP beneficiaries may choose not to enrol in post-secondary institution. What happens then?

If the Beneficiary Does Not Continue Their Education

In the event that an RESP is set up for a beneficiary who does not wish to enrol in further education, contributors have the following options on how to deal with the saved funds:

1. Leave the savings in the RESP.

Contributors can leave the RESPs open just in case the beneficiary wishes to attend an education institution one day in the future. In fact, these types of savings accounts can be left open for 36 years. If an RESP remains active, the named beneficiary has the option to pursue higher education and fund relevant expenses through their savings plan. 

2. Replace the beneficiary named on the RESP.

The ability of contributors to transfer the named beneficiaries on their savings accounts is dependent on the type of RESP selected—this must be one of three options: individual (non-family) plan, group plan, or a family plan.

Under an individual (non-family) plan as well as a group plan, depending on the structure of the RESP as outlined by providers, contributors may have the option to name another beneficiary. However, this amendment may be subject to fees.

Alternatively, in a family plan (since there is often more than a single beneficiary covered) contributors have the ability to transfer any untouched funds to an alternative beneficiary named in the savings account. For example, if a parent opened up an RESP for their son and daughter and only the daughter went to university, the parent would have the option to transfer all funds originally intended for their son to their daughter’s account instead.

3. Transfer the funds into another savings account (like an RRSP).

Contributors have the ability to move any unallocated funds up to a maximum of $50,000 tax-free from their RESP to the RRSP. However, there are a few eligibility restrictions that apply to this transfer, including:

      • The RRSP must have been open for at least 10 years.
      • All the beneficiaries under the RESP are over the age of 21 and are not currently enrolled in a post-secondary education institution.
      • There is room in your RRSP for additional contributions.
      • The policies under your RRSP must explicitly allow for an RESP transfer to occur.

4. Close the RESP.

If the event that a plan contributor wishes to completely close their savings account, the three types of funds within the RESP (individual contributions, government grants, and interest acquired) will be distributed accordingly:

      • Individual contributions are not taxed as income and these funds would therefore just be returned to your selected deposit account. The total contribution amount that you have accumulated through years of saving will be returned in full.
      • Government grants such as the CESG and the CLB must be returned to government in totality. These funds are solely intended for educational purposes, and failure to send the funds back may put contributors at risk. 
      • Interest acquired through investment in an RESP is eligible for withdrawal as long as the account has been open for at least 10 years and all beneficiaries under that plan are over the age of 21. However, this interest will be subject to income tax as well as reported on the plan contributor’s T4 come tax season.

Important Considerations

In order for RESP amounts to be used towards funding a beneficiary’s education, the length of study must meet the government’s minimum duration of a qualifying education program. This means the program must be one of the following: a full time-program in Canada, a full-time program outside of Canada, or a part-time program in Canada.

A full-time program in Canada is considered to be a course of study that lasts at least three consecutive weeks with a minimum of 10 hours of instruction or work performed each week.

Alternatively, a full-time program outside of Canada is one led by a foreign educational institution with a duration of at least 13 weeks.

Lastly, a part-time program in Canada is one that lasts three consecutive weeks and requires participants to spend more than 12 hours of study per month on course contents. If an educational program does not meet any of the aforementioned requirements, it will not be eligible for educational expenses.

A smiling young adult in a graduation cap and  stole. He likely funded his university experience with an RESP

In Conclusion…

An RESP is an excellent, tax-efficient way to save and set goals for the future. It is crucial that potential contributors seek advice from financial experts like those at Qube. Our team has knowledge on proper plan administration, tax expertise, and CRA guidance. We can counsel you on contribution amount maximums and plan eligibility—decisions that require thorough expertise. If plans are implemented without proper consideration, you could put yourself at risk of tax restitutions.

Individuals who are seeking to utilize an RESP in funding their beneficiaries’ education will benefit from the services of a Portfolio Manager. If you would like to learn more, reach out to us by email or call (780) 463-2688.

DISCLAIMER

Qube Investment Management Inc. has authored the material presented above for the promotion of financial literacy and professional development. Qube makes no warranty for the accuracy, validity, or completeness of the above information. It is not intended to provide specific advice with respect to individual financial, investment, tax, legal or accounting matters.

 For advice specific to your situation, consult appropriate investment, legal or accounting professionals.

PLANNING FOR YOUR INVESTMENTS SHOULD NOT BE OVERWHELMING.

Book a quick chat with us to see if we can help you plan for your goals.