The 2023 federal budget proposed earlier access to more Education Assistance Payments (EAPs) from Registered Education Savings Plans (RESPs). Assuming the budget passes and becomes law, students in the first 13 weeks of a post-secondary program will be allowed to receive EAPs up to $8,000 (currently $5,000) if they’re full-time and up to $4,000 (currently $2,000) if they’re part-time.
Sources of money in RESPs
Imagine that Sophie, 18, is an only child who has just graduated from high school and been accepted into a Bachelor of Science program at a local university. She’s excited to get started on the path towards her dream career as a nanotechnologist, designing tiny devices she hopes will revolutionize medicine.
Sophie’s parents have been contributing to her RESP since she was born and, as far as she’s concerned, she has $70,000 in her RESP to put towards her university degree. But the government doesn’t think of that money as one big pot. It divides it into three categories, each with different rules:
- Original contributions
- Government grants and bonds
- Investment growth
RESP withdrawals – Tax considerations
When the beneficiary of an RESP enrolls in a qualifying education program, original contributions are the beneficiary's without restriction. They can withdraw as much as they want, whenever they want, and with no tax consequences.
The investment growth and government grants, however, come out of the RESP to pay for the beneficiary's education as Education Assistance Payments (EAPs). The amount that can be withdrawn as an EAP is limited during the first 13 weeks of the beneficiary's program, and taxable in the hands of the beneficiary attending school. After 13 weeks, the beneficiary can withdraw as much as they needs in EAPs provided they are still enrolled in a qualifying program.
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.
How to withdraw money from an RESP
How can money from an RESP be spent
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 your 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 increased limits for EAP withdrawals during the first 13 weeks of a full-time or part-time program.
Many people focus on the front end of RESPs – contributing and building savings through investment – but withdrawals on the back end are critical to manage as well. Your advisor can help you create an RESP strategy that encompasses both, guiding you as you accumulate funds for education and providing advice on how to withdraw from an RESP in the most tax-efficient manner possible when the time comes for your children or grandchildren to start realizing their educational dreams.
Edward Jones, its employees and financial advisors cannot provide tax or legal advice. You should consult your lawyer or qualified tax advisor regarding your situation. This content should not be depended upon for other than broadly informational purposes.