A great deal of financial success comes down to executing the basics well. In this series called Investing Basics, we review some of the fundamental tools that can help you and your family build and protect wealth over time. In this installment: Withdrawing from your RESP

For parents of university students who have been disciplined in saving for a child’s post-secondary education through a Registered Education Savings Plan – congratulations! You can breathe a sigh of relief instead of despair as the tuition statements roll in. While many people are familiar with contributing to an RESP, we don’t necessarily know much about withdrawing from the account. For example, which expenses, other than tuition, are considered to be eligible expenses? Which documentation do we need to provide in order to access the RESP funds? How much can be withdrawn at a time? What are the tax consequences of such withdrawals?

Once your student is enrolled in a qualified post-secondary education or training program, the contributions, accumulated income, grants, and learning bonds can be paid out to the student. Withdrawals for the student can be categorized as: 1) a return of contributions (also called Post-Secondary Education Withdrawals or PSW), or 2) an Educational Assistance Payment (EAP), which includes accumulated income, grants provided by the Government, and learning bonds. The student must claim all EAPs as income on their tax return in the year in which they receive them – as such, a T4A will be issued in their name. Quite often, students have income below the basic personal amount, or they may be able to claim tuition tax credits, so this results in little or no tax liability. The return of contributions can go to you or be redirected to the plan beneficiary. These withdrawals are not taxable.

EAPs can be used to cover school expenses (ie. tuition, books, housing, and school travel) incurred while the student is enrolled. As of this year, full-time students can now access up to $8,000 in EAPs during the first 13 weeks of enrolment. Thereafter, there is no limit on the EAP amount. If your student is in their second year of school and you did not access any RESP funds for that first year, you would just need to prove enrollment for the previous year and the $8,000 limit will not apply. (Note that there are separate rules for part-time students, so please check the Government of Canada’s RESP guide.)

So, how do you go about accessing the funds from your RESP? To elect to withdraw an EAP, you must sign a withdrawal form from your RESP provider and the beneficiary must provide proof of enrolment in a qualified program. This can be a copy of a tuition fee invoice from the school, with evidence of credits indicating full-time enrollment. If you have a family plan, you can allocate the RESP funds amongst the beneficiaries as you see fit, although government grants are beneficiary specific.

The RESP is just one element of your financial plan. For more information, or if you are interested in an overall financial plan, please contact us at Cumberland Private Wealth. “Achieving your financial goals, is security. Understanding how, is power.” We are always happy to assist you.