How to withdraw money from an RESP

 When subscribers withdraw money from an RESP, they have the flexibility to designate money withdrawn as either withdrawn contributions or Educational Assistance Payments (EAPs).

• Original contributions are the amounts that were deposited into the RESP by the subscriber (parent or guardian)
• EAPs are funds that result from government grants and investment growth

Often, it makes sense to prioritize withdrawing Educational Assistance Payments (EAPs) first to avoid severe tax penalties. If EAPs remain unused in the plan, they must eventually be withdrawn as Accumulated Income Payments (AIPs), which carry punitive tax treatment: the government claws back any unused grants, and the subscriber must pay their marginal tax rate plus an additional 20% penalty on the investment growth.

By maximizing EAP withdrawals while the beneficiary is in school, you preserve your original contributions in the plan. This can be advantageous because contributions can be withdrawn tax-free at any time (even after the beneficiary graduates), making them far more valuable to keep as a reserve than EAPs, which can become a costly loss if left unused.

Government limits on Educational Assistance Payments (EAP) RESP withdrawals

The government imposes limits on the amount of EAPs that can be withdrawn from RESPs during the first semester of studies. EAPs withdrawn in the first 13 consecutive weeks of a post-secondary program are limited to:

• $8,000 for full-time students
• $4,000 for part-time students.

Any withdrawals above these limits must come from original contributions, which can be withdrawn tax-free at any time. In contrast, EAPs can only be paid to qualifying beneficiaries and are taxable in the student’s hands. Because there are more restrictions with EAP withdrawals, it’s often a good idea to withdraw more EAPs early in a student’s post-secondary education.

After 13 weeks, the beneficiary can withdraw as much as they need, provided they are still enrolled in a qualifying program. This flexibility provides important options for managing education funding across multiple years and potentially multiple children.

An Edward Jones advisor can help you understand the optimal withdrawal strategy for your RESP.

Tax treatment of RESP withdrawals

When the beneficiary of an RESP enrolls in a qualifying education program, tax treatment depends on the type of withdrawal made:

Original RESP contribution withdrawals

Original contributions can be withdrawn tax-free, since they were contributed with after-tax dollars. Beneficiaries can withdraw as much as they want, whenever they want, and with no tax consequences.

EAP withdrawals

EAP withdrawals are taxable in the hands of the beneficiary attending school.

If the beneficiary doesn’t use all the available EAPs before graduating, the investment growth can still be withdrawn as an Accumulated Income Payment (AIP), but it will be taxed in the subscriber's hands at their marginal tax rate, plus an additional 20% tax. There is one way this can be avoided: a subscriber is allowed to transfer up to $50,000 of AIPs to their RRSP with no immediate tax consequence, if they have sufficient RRSP contribution room available.

An Edward Jones advisor can help make a withdrawal strategy that takes tax considerations into account.

How can money from an RESP be spent

There are no restrictions on how money withdrawn from an RESP, including EAPs, is spent, as long as the beneficiary is enrolled in a qualifying full-time or part-time educational program.

What happens if there is still money left in the RESP after graduation

Treatment of unused money in an RESP depends on the origin of the funds.

Original contributions

Remaining original contributions can be withdrawn without any tax consequence.

Educational Assistance Payments

Since EAPs are comprised of both government grants and investment growth, the origin matters:

Government grants

Government grants left in the account must be returned to the federal government.

However, if the beneficiary is part of a family RESP with more than one beneficiary, and if one child doesn't withdraw his or her government grants, they may potentially be transferred to another beneficiary of the plan, provided the $7,200 CESG lifetime limit per beneficiary is not exceeded.

Note that, while the lifetime $7,200 CESG limit per child still applies, the lifetime $50,000 contribution limit does not apply in this case. That is, in a family plan with multiple beneficiaries, if one child doesn't attend postsecondary school, the original contributions made in that child's name can be allocated to the remaining beneficiary(ies) even if it results in more than $50,000 being contributed for a single beneficiary.

Investment growth

Investment growth can still be withdrawn as an Accumulated Income Payment (AIP), which is taxable in the subscriber's hands at their marginal tax rate, plus an additional 20% penalty.

AIP withdrawal tax can be avoided by transferring up to $50,000 of AIPs to the subscriber's RRSP with no immediate tax consequence, if they have RRSP contribution room available.

What happens if there is still money left in the RESP after graduation

It's essential to develop a personalized plan for your family's RESP. The rules are complex, and there can also be additional considerations if students switch programs or take time off during their studies.

With a financial advisor's support, you can structure RESP withdrawals to include EAPs and contributions in the proportion that works best for your family – and make sure you’re taking full advantage of the EAP withdrawal limits during the first 13 weeks of a full-time or part-time program.