RESP Withdrawal Rules
The big day is fast approaching. Congratulations, your child is going to pursue a post-secondary education. And part of getting ready includes taking care of how to pay for it. Like many parents, you may have been saving for this day by diligently putting money into a Registered Education Savings Plan (RESP). And now it’s time to start withdrawing.
What follows are some answers to common questions about RESP withdrawal rules and limits. If we can offer one piece of advice here, it’s give yourself enough time. The process of withdrawing is a bit involved, but don’t worry. We’ve helped thousands of parents through it.
Who is eligible to withdraw from an RESP?
The money in an RESP is controlled solely by the subscriber, the person who sets up the plan. In most cases, the subscriber is a parent. This means only the subscriber is allowed to request payments from the account, not the beneficiary (or student). Withdrawals of contributions made by the subscriber for education purposes are called Post-Secondary Education Payments (PSE). They are returned to the subscriber. Withdrawals of the earnings within the plan and the government grant and/or bond portion are called Educational Assistance Payments (EAP) and are paid to the beneficiary.
PSE: Post-Secondary Education Payments (from subscriber contributions)
EAP: Education Assistance Payments (from earnings and government grants and bonds)
When should you make your request to withdraw?
The sooner the better, especially if you have investments as part of your RESP that will require time to convert into cash. Start thinking early about making an appointment with a TD advisor to begin the RESP withdrawal process, and make sure you have the required documentation confirming enrollment.
Are there RESP withdrawal limits?
As per the RESP withdrawal rules, there is no limit on the amount of subscriber contributions, PSE, that can be withdrawn. There is a $5000 limit for full-time enrollment and a $2500 limit for part-time enrollment on EAP contributions during the first 13 weeks of schooling. Once the 13 weeks have passed, any amount of EAP can be withdrawn.
What can RESP withdrawals be used for?
There are no restrictions on how the RESP funds can be spent. It’s a good idea to keep a list of common expenses, like tuition, books, residence fees or rent, living expenses and any other items that might be required, like a computer.
What are the tax implications for withdrawing?
Let’s look at the two parts that make up the money in an RESP.
1. Contribution amount. This is the original payments into the RESP, paid with after-tax dollars by the subscriber. When you withdraw contribution amounts, as Post-Secondary Education Payments (PSE) they are not taxed.
2. Grant, bond, and income. This includes benefits like the Canada Education Savings Grant (CESG), the Canada Learning Bond (CLB), and any provincial incentives. It also includes any investment income, like dividends, capital gains, or interest, that was earned inside the RESP. When money is withdrawn from this portion it is called an Educational Assistance Payment (EAP) and the beneficiary pays the tax on this income. Consider that its likely students are in a lower tax bracket and will pay less taxes than if it were taxable to the subscriber.
Which schools are eligible?
A master list of qualifying education institutions is available at the Government of Canada website. This list has expanded from universities and colleges to include a wide variety of educational institutions including vocational schools and specialty colleges, to encourage more people to pursue a post-secondary education.
Meet with a TD advisor to start the process
If you have an RESP at TD, one of our TD advisors would be happy to discuss in more detail how to withdraw money. When setting up an appointment, you will be asked to provide certain documents, including proof of the beneficiary's enrollment.
Ready to meet with a TD advisor? Book an appointment.
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