Back to School: Your RESP Withdrawal Questions Answered

With kids back in school, it is also the season for questions about Registered Education Savings Plan (RESP) withdrawals.

This may sound familiar: when children were young, you opened the RESP and began setting aside funds for their future education. Over the years, those contributions, together with government grants and investment growth, have helped build a meaningful source of education funding. Now, the focus shifts from saving to withdrawing. Perhaps you’re asking: What’s the most effective way to withdraw the funds? Here are answers to some withdrawal questions:

1. What is taxable? It’s important to distinguish between two types of RESP withdrawals for educational purposes. The educational assistance payment (EAP) consists of any income earned or grants accumulated in the plan and is taxable in the hands of the beneficiary attending a qualifying program. The post-secondary education (PSE) payment represents funds that the subscriber contributed and is not subject to tax. When you withdraw from the RESP, you need to specify the type of withdrawal you wish to make. Please call the office if you need help identifying each component.

2. How can RESP withdrawals be structured tax-efficiently? Students often don’t have significant income, so it generally makes sense to prioritize EAPs when a beneficiary has a lower marginal tax rate. If they have meaningful income, perhaps from part-time employment, and expect lower income in future school years, it may make sense to defer a portion of the EAP. If the RESP is large, consider spreading EAPs over several years to reduce the potential tax liability in any one year. A student may be able to use non-refundable tax credits, including the basic personal amount and tuition tax credit, to offset some or all of the tax otherwise payable on EAP income. For 2026, the federal basic personal amount is $16,452. Assuming eligible tuition fees of $7,734 (based on average Canadian undergrad tuition), a student with no other income could potentially receive $24,186 in EAPs without incurring federal income tax.

3. Should market conditions affect withdrawal timing? In volatile markets, it may be prudent to wait for investment values to rebound. However, tax and other considerations should also guide the timing. The basic personal amount must be used in the current tax year, while unused tuition credits can be carried forward. If the student has other income, a larger EAP may also result in a higher marginal tax rate. There may also be risks to delaying withdrawals if the student does not complete their studies.

4. What happens if the beneficiary doesn’t attend post-secondary school? While original contributions (PSEs) can be withdrawn without tax consequences, unused government grants may need to be repaid and accumulated investment income may be taxable to the subscriber and subject to additional tax. There may be an opportunity to transfer eligible funds to a sibling’s RESP or transfer accumulated income to a subscriber’s Registered Retirement Savings Plan (RRSP), subject to available contribution room and a lifetime maximum of $50,000. Remember also that the RESP can stay open for up to 36 years in the event a beneficiary changes their mind.

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