In the next few months you may be sitting down with your graduate to discuss post-secondary education options. If you have been saving diligently to an RESP, there is a good possibility you will have enough to cover some, perhaps all of their education and living expenses.
You will want to make the most of your RESP dollars. Consider these smart withdrawal strategies.
- An RESP can be used for 35 years from the day it is opened, so you don’t have to be in a hurry to redeem the money and use it up. You can spread withdrawals out over a 4 year undergrad program or over several years, whichever is most beneficial for your family.
- If your child has other sources of income you may want to hold off on withdrawals to increase tax deferred growth in the RESP
- There are 3 types of money in the RESP – contributions you put in, government money you received in the form of grants and bonds as well as income or gains that were generated on your investments. While contributions can be withdrawn tax free, grant money and plan income are taxable to the recipient – another reason you may want to delay withdrawal if your student has taxable income.
- Grant, bond and income gains will be taxable income to the recipient as noted above – if they make these withdrawals in a low income year it’s possible they can be withdrawn tax-free or very close to it. Conversely, if they will start earning a salary while completing their education you may want to make these withdrawals while they are in the lowest tax bracket.
- If your child does not go to school, contributions and sometimes growth can be returned to the subscriber, person who opened the RESP or transferred to another child.
- If you withdraw contributions or income from an RESP while your child is not enrolled in post-secondary education, the grant money will be returned to the government. The income or growth will be taxable to the subscriber who could also be subject to a penalty. A good option is transfer it to your RRSP.
As with most financial decisions there is no simple and straight forward solution. It’s best to talk to your Certified Financial Planner, who will be able to advise you of the best withdrawal strategy for your family.
This column is written by Michelle Weisheit CFP, IG Wealth Management and presents general information only and is not a solicitation to buy or sell any investments. Please contact your own advisor for specific advice about your situation.