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Not everyone goes to college

Registered Education Savings Plans (RESPs) have long been a popular way to help pay for the escalating cost of a post-secondary education. In fact, according to the Government of Canada, in 2014, assets held in RESP accounts reached over $44 billion1.

But what happens to that money if your teenager decides on a career path other than college or university? The good news is you can still use the funds for other purposes, as long as you follow certain rules.

These are your withdrawal options:

  • If your RESP is an individual plan that allows only one beneficiary, you can transfer the plan to another RESP with a different beneficiary, or you may be able to simply change the beneficiary on the existing plan.
    • You’ll have to repay any Canada Learning Bond (CLB) amounts in the plan
    • Depending on the age and relationship of the beneficiaries to each other, you may have to repay Canada Education Savings Grants (CESG)
    • All contributions and plan income remain intact for the new beneficiary
  • If your RESP is an individual plan that allows multiple beneficiaries, each of whom is related to you by blood or adoption, you can add a new beneficiary (who is under 21) at any time. The CLB can only be used for the original beneficiary but your contributions, plan income and the CESG are available to any beneficiary in the plan. The ability to share provincial grants will depend on the program.
  • If your beneficiary decides not to use an individual RESP for their education, and there are no other family members to whom you could transfer your beneficiary’s plan, then, as the subscriber, you may choose to:
    • Withdraw your contributions from the account at any time, tax-free. However the federal and possibly provincial grants will have to be repaid.
    • Withdraw Accumulated Income Payments (AIPs) – the plan’s income – subject to a repayment of CESG, CLB, and provincial grants. An AIP is generally only permitted if the plan is at least 10 years old and the beneficiary is at least 21. AIPs are fully taxable at your marginal tax rate. There is also a 20% penalty tax, but this tax is not applicable if the funds are transferred from your AIP to an RRSP account. The limit on this transfer is $50,000. An added bonus is that you will defer paying tax on the AIP.

If your RESP is a group or ‘pooled’ plan, talk to your RESP issuer about your options. Your professional advisor will make sure you get the most from your RESP options and other financial planning strategies.


August 31, 2015

This column, written and published by Investors Group Financial Services Inc. (in Québec – a Financial Services Firm), and Investors Group Securities Inc. (in Québec, a firm in Financial Planning) presents general information only and is not a solicitation to buy or sell any investments. Contact your own advisor for specific advice about your circumstances. For more information on this topic please contact your Investors Group Consultant.