Idle funds in your child's Registered Education Savings Plan? Various choices available:
New and Groovy take on RESP Funds After Education:
Ding dong, the school bell's rung, and your kid's cruisin' through college, thanks to that Registered Education Savings Plan (RESP) you started years ago! But what happens when that RESP account's got more clams than a seafood shack? Well, grab your shades and beach towel, because we're about to explore some rad options.
Once your child's officially enrolled in a qualifying post-secondary institution, like uni, college, trade school, and more, you can start dipping into that RESP.
The Canadian government's got your back with the Canada Education Savings Grant (CESG), offering up to $7,200 per eligible kid. This babys, y'all! The RESP dough can cover everything education related, but there are two types of withdrawals to remember when you're diving in.
First up, the Post-Secondary Education (PSE) withdrawal, made by the subscriber, usually a parent. This is simply tapping into the money they put in initially.
The second type is the Education Assistance Payment (EAP), a blend of the government grants and investment earnings, paid to the student (the beneficiary). Both have the same goal: pay for school.
Now here's the scoop on EAP withdrawals: in the initial 13 weeks of full-time studies, EAPs are capped at $8,000. After that, there's no limit, but you should plan things out so your child's education's mostly or entirely covered.
For part-timers, EAPs are limited to $4,000 for each 13-week enrollment period. EAPs are considered income and are taxed when taken from the RESP.
If the RESP's got money left over after post-secondary education, Stefanie Ricchio, CPA & TurboTax Canada Brand spokesperson, says there are sweet options.
"(The parent) can roll it over to (their) RRSP," she says, "but be mindful of available contribution room to avoid any overcontribution penalties."
The max rollover amount from an RESP to a subscriber's RRSP account is $50,000.
If you've got more littles, you might be able to transfer the leftover RESP funds to their plan. This is contingent on a few factors: the kid's younger than 21, the RESP accounts are for siblings with the same subscriber, AND you don't go over the $7,200 grant limit per child.
Transitioning to an older sibling? You might have to return some or all of the Canada Education Savings Grant. You can still transfer the contributions, but keep in mind you can only contribute $50,000 to each child's RESP lifecycle, so check the account's max contribution before tossing in more dough.
If you plan on transferring RESP savings to another child, and they're younger than 21, you can transfer without any tax penalties. If they're older than 21, EAPs, CESGs and Canada Learning Bonds have to be returned.
Jason Heath, advice-only financial planner at Objective Financial Partners, throws a warning flag for group RESPs, where savings are combined with others saving for children born the same year as yours.
"If some money is left in the plan," he says, "you may not be able to withdraw. It might be that it stays in the group plan for hundreds or thousands of other beneficiaries."
And finally, you can even stick the remaining money in a Tax-Free Savings Account (TFSA), says Devin Cattelan, certified financial planner and portfolio manager at Verecan Capital Management. Just remember, you've gotta withdraw the money from the RESP first before stowing it away in a TFSA.
"We've seen clients do that," he says, "and it can help with a down payment for a property, if they're fortunate enough. It's a pretty flexible program."
While the program's flexible, keep in mind that there are guidelines for withdrawals, taxes, and timing. So, when you're ready to dive in, remember: withdrawals can be taxed, and there are rules about how much can be taken out depending on when the beneficiary starts their post-secondary education. Plus, the more you know about RESPs, the more opportunities you'll have to make the most of them!
[1] Details on tax implications, penalties, and strategies, such as transferring unused grants or EAPs to family or group plans or contributing to RRSPs, can be found in the Enrichment Data section provided.
- The Canadian government's Canada Education Savings Grant (CESG) can also be rolled over to the subscriber's Registered Retirement Savings Plan (RRSP) if there are remaining funds in the RESP account after the child's post-secondary education.
- If you have other children, leftover RESP funds can potentially be transferred to their accounts under certain conditions: the child must be younger than 21, the RESP accounts are for siblings with the same subscriber, and the total contributions across all children stay below the $7,200 grant limit per child.
- In some cases, like group RESPs where savings are shared among multiple children born in the same year, restrictions may apply when withdrawing remaining funds, making it impossible to access all the savings, according to Jason Heath, advisor-only financial planner at Objective Financial Partners.
- After withdrawing funds from the RESP, the remaining money can be moved into a Tax-Free Savings Account (TFSA) for further financial opportunities, as mentioned by Devin Cattelan, certified financial planner and portfolio manager at Verecan Capital Management.
