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You made saving for your child’s post-secondary education a priority because you understand their education provides the foundation for careers and future success. Now that they have graduated high school, it’s a good time to get answers about Registered Education Savings Plan (RESP) withdrawal rules, limits and taxation strategies to ensure these savings are withdrawn with the best plan of action.

When can funds be withdrawn from an RESP?

RESP funds can be withdrawn once the child has graduated high school and has officially accepted their post-secondary program offer from a qualified post-secondary institution.

What can RESP funds be used to cover?

RESP funds can pay for any school-related costs at qualifying post-secondary institutions related to:

• Full-time programs in Canada, lasting at least three consecutive weeks with 10 hours of instruction or work per week

OR

• Part-time programs in Canada, lasting at least three weeks with a minimum of 12 hours per month on courses in the program

What is a qualified post-secondary institution in Canada?

There are several options in Canada where RESP funds can be used including:

• colleges and universities

• general or vocational college

• trade schools

• religious schools

• qualifying international schools

• other institutions certified by the Minister of Employment and Social Development

What are the different types of withdrawals and maximum withdrawal amounts?

There are two types of RESP educational withdrawals, with varying maximum withdrawal amounts.

1. Post-Secondary Education (PSE) withdrawals are funds accumulated from the contributions made by the subscriber which are from after-tax monies. PSE contributions have no withdrawal limits.

2. Education Assistance Payment (EAP) withdrawals are funds from the investment earnings and the government grants. In Ontario, government grants include the Canada Education Savings Grant (CESG) and Canada Learning Bond (CLB.)  EAP withdrawals have a $5,000 limit if the beneficiary is enrolled full time and $2,500 limit if the beneficiary is enrolled part time during the first 13 weeks of schooling. After the 13 weeks have passed, any amount can be withdrawn.

How are RESP withdrawals taxed?

Withdrawals from the PSE portion of the RESP are removed tax free. Withdrawals from the EAP portion are taxable income to the student beneficiary, who as a student is generally in a lower marginal tax rate since they typically have less earned income and have tuition and educational tax credits. Each student beneficiary cannot receive more than $7,200 in Canada Education Savings Grants in their lifetime.

What if the RESP beneficiaries do not attend post-secondary school?

If the beneficiary decides not to pursue post-secondary education, there are options to consider:

• Leave monies saved in the RESP. Funds can be left in the plan for up to 36 years, so you may want to leave the money as is in case the child changes their mind.

• Replace the RESP beneficiary. In an individual plan, you may have the option of naming another person as the beneficiary. In a family plan, the beneficiaries can share the grant and earnings. Either way, the monies saved in the RESP can still be accessed to cover education costs.

• Transfer money in the RESP to your RRSP. You may transfer up to $50,000 of earnings tax free from the RESP to your RRSP if the RESP has been open for a minimum of 10 years, the beneficiaries are at least 21 and you have RRSP contribution room.

• Close the RESP and keep your contributions. If you decide to close the RESP, the grant and bonds are returned to the government. You receive the earnings if the plan has been open for at least 10 years and the beneficiaries are at least 21 years of age.

• Transfer money in the RESP to a Registered Disability Savings Plan (RDSP). Consider this option if the RESP and RDSP share a common beneficiary, if the beneficiary has a severe and prolonged mental impairment that prevents them from completing post-secondary education, if the RESP has been open for at least 10 years, if the beneficiary is at least 21 years old and if the RESP has been open for at least 35 years.

FirstOntario Credit Union in partnership with Credential Securities and Credential Asset Management Inc. has an experienced team of advisors specializing in various areas of wealth management including retirement planning, investment management, estate and succession planning, individual financial risk management and more. These professionals are here to help you plan for the future and reach your financial goals. Visit FirstOntarioInvestments.com or call 1-800-616-8878 ext. 1700 to connect with a FirstOntario advisor and start growing your wealth today – your way.

Mutual funds, other securities and securities related financial planning services are offered through Credential Securities, a division of Credential Qtrade Securities Inc. Credential Securities is a registered mark owned by Aviso Wealth Inc. Mutual funds and related financial planning services are offered through Credential Asset Management Inc.