Registered Education Savings Plan (RESP)

Here are some things you should know about a Registered Education Savings Plan:

  1. There are two sources of money in your Registered Education Savings Plan – the funds you contributed and the income your investments earned. The income portion includes government grants, dividends, interest and capital gains.
  2. When you withdraw the income portion, called Educational Assistance Payments (EAP), the student will receive a T4 for that amount and will have to declare these earnings on their tax return. It is prudent to consider how much income they have already earned in the year and then adjust the withdrawal accordingly. There is a $5,000 cap on the withdrawal of EAP in the 1st 13 weeks of school.
  3. The funds you contributed can be withdrawn without penalty or tax as long as one of the listed beneficiaries is in an acceptable post-secondary program. These withdrawals are called Post Secondary Education payments (PSE).
  4. Acceptable post-secondary programs are ones where the student is working towards a diploma, degree, certificate, or journeyman ticket. It is important to note that if your student is attending post-secondary in  ‘general studies’, that is just taking a variety of courses but not working towards a designation, CRA will not permit a withdrawal without penalty.
  5. The amount that can be withdrawn depends whether the student is full-time or part-time. For full time students, CRA will permit withdrawal of up to $21,500 per calendar year, without proof of expenses.  The limit for part-time students varies based on the number of courses being taken.
  6. Your Registered Education Savings Plan provider will require proof of registration from the post-secondary institution. This proof must include:
    • The name of the school
    • The name of the student
    • ID number of the student
    • Name of the program (ie: Bachelor of Arts)
    • Year of study
    • Full time or part-time
  7. In addition, your Registered Education Savings Plan provider will require a letter from you indicating how much money you would like withdrawn, to whom it should be payable, and where the funds should be sent.  However, you don’t have to explain how you spent or are going to spend the RESP money. You also get to choose who the money goes to, the student or yourself.
  8. If you have a family plan Registered Education Savings Plan, make sure you don’t withdraw more than $7,200 of grant money per child. Every EAP contains some grant money and it is possible to withdraw more grants than the $7,200 lifetime limit for one child. If that happens, the excess grants will be returned to the government.
  9. There are penalties if you don’t withdraw the EAP money that exists within the Registered Education Savings Plan.  If your child finishes school early or doesn’t need all the earnings money in the RESP, withdraw it all as an EAP anyway, to avoid the penalties. You can also take advantage of the six-month rule which allows you to do an EAP for six months after the child has stopped going to school

If you have a scholarship plan instead of a Registered Education Savings Plan, you should contact your provider directly.

If you need more information or have any questions, feel free to contact us at 780.466.6204, or [email protected].

Thanks to Jane Alm of the Angus Watt Advisory Group at National Bank for providing much of this content.

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