Do you have a child headed to college or university? Congratulations! Now is the time to tap into the fruits of your labour: the RESP.

Not All RESP Withdrawals Are Equal: Plan Your Withdrawal

It’s important to distinguish between the types of RESP withdrawals for educational purposes. A post-secondary education (PSE) withdrawal consists of funds originally contributed to the plan. These are not taxable. An educational assistance payment (EAP) is the withdrawal of income, capital gains and grants that have accumulated in the plan. This is taxable in the hands of the beneficiary.

Since EAPs are taxable, one consideration may be to spread them out over several years to reduce the tax bill. This is because the student can take advantage of tax credits to offset EAP income. The basic personal amount for the 2024 tax year is $15,705. Assuming a federal tuition credit of $7,360, the federal tax credit would total $23,065, so a student with no other income could potentially receive $23,065 of EAPs in 2024 and pay no tax. Remember: the basic personal amount is a non-refundable tax credit, so it cannot be transferred to future years. The tuition credit, however, can be carried forward.

It may be beneficial to withdraw EAPs when the student has a low income. If the student has other income, such as from scholarships or a part-time job, this alongside a larger EAP withdrawal could put them in a higher marginal tax bracket. While waiting to make a future EAP withdrawal may benefit from additional tax-sheltered growth in the plan, if the student drops out of school, there may be tax implications to you as the “subscriber.” Remaining income/grant money may be taxable and an additional 20 percent penalty tax may apply.

Haven’t Accessed the RESP? Plan Ahead

If you haven’t yet accessed the RESP, plan ahead as the process can take time. You’ll need a proof-of-enrolment form completed by the post- secondary institution. This can usually be requested online and many schools email an electronic version to the student within a couple of business days. You must also complete the RESP withdrawal form, specifying the type of withdrawal (EAP or PSE) and where you wish the funds to go. If you need to understand the amount of income/grants received, please call. If you are requesting an EAP, keep in mind that there is a limit of $8,000 for the first 13 weeks of enrolment for full-time programs. Also, consider that the settlement process for selling securities can take time.