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RESPs – more than tuition

Your son or daughter will soon be heading off for their first year of post-secondary education. Now it’s time to tap into the investments held in the Registered Education Savings Plan (RESP) you diligently built for so many years.

Withdrawing from your RESP should take some careful thinking because you have decisions to make about how you withdraw your funds to best take advantage of Educational Assistance Payments (EAPs), which consist of the Canada Education Savings Grant (CESG)¹, the Canada Learning Bond (CLB) and the income you’ve re-invested within the RESP.

Know your withdrawal options: Once your child is enrolled in an eligible program you can withdraw plan contributions tax-free and use them any way you wish.

Know your limits: In most cases, the government restricts the withdrawal of plan income EAPs to a maximum of $5,000 in the first 13 weeks of your child's qualifying educational program. In some cases, the limit may be $2,500 per 13-week period. EAPs must be used to further your child’s post-secondary education and can include tuition, school/student fees, textbooks and even reasonable costs for moving, rent, food, and transportation.

Get government permission: You can request the permission of the Minister of Employment and Social Development Canada to exceed the $5,000 or $2,500 limits on plan withdrawals. Make your request in writing and send it in as early as possible.

Avoid paybacks: If there is any money received remaining in your plan after your child's postsecondary program has been completed, you may be required to refund some of the CESG your plan had received. To avoid any potential CESG paybacks, be sure to deplete your plan's earnings first.

Take advantage of left-over contributions: Any contributions remaining in the plan after your student finishes college or university are yours to use as you wish: transfer them to another child’s plan or withdraw them for personal use.

Be tax-savvy: Remember that earnings withdrawn from your plan will be taxed as part of your child's income. This could be a tax advantage if your child's income is low because these earnings could be effectively tax-free.

Education is expensive – and getting more so by the day. An RESP vehicle is a vital foundation of a well-funded post-secondary experience. But, there are other steps you can take to ensure your financial stability and achieve a debt-free education for your children. Your professional advisor can provide a critical helping hand every step of the way.

Date reviewed: July 14, 2014

1Canada Education Savings Grant is sponsored by Human Resources and Skills Development Canada.

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