What happens to RESP money if my child doesn't go to school?

You have several options: (1) Leave the RESP open for up to 35 years in case your child changes their mind; (2) Change the beneficiary to a sibling or another eligible child; (3) Transfer grants and investment earnings to your RRSP (up to $50,000 if you have room); (4) Close the plan and return the grants to the government, paying tax plus a 20% penalty on the investment earnings.

Do I lose my CESG grants if my child doesn't go to school?

Yes. CESG grants must be repaid to the government if the child does not pursue qualifying post-secondary education and either the beneficiary is changed to an ineligible person, the plan is closed, or the grants reach their 35-year expiry. Your own contributions come back tax-free; only the grant money (and earnings on grants) must be repaid or are taxed.

Can I keep an RESP open if my child doesn't go to school right away?

Yes. An RESP can remain open for 35 years after it is opened. If your child takes a gap year, travels, or starts working before deciding to go to school, you can simply leave the RESP invested and wait. The child can access it years later when they enrol in a qualifying program. You just cannot add more contributions after the plan has been open 31 years.

Can I transfer RESP investment earnings to my RRSP if my child doesn't go to school?

Yes — up to $50,000 of Accumulated Income Payments (AIPs) can be transferred to your RRSP or spousal RRSP, provided you have sufficient RRSP contribution room. This avoids the 20% AIP penalty on the transferred amount. The transfer is only available if the RESP has been open at least 10 years AND the beneficiary is at least 21 years old and not eligible for a full-time education assistance payment.

What is the 20% AIP penalty?

If you close an RESP and take back the investment earnings (not your contributions — those come back tax-free), the earnings are added to your income AND subject to an additional 20% penalty tax. This stacks on top of your marginal rate. At a 40% marginal rate, you would pay 60% total on the earnings withdrawn as an AIP. The penalty does not apply to contributions or grants (grants are returned to the government separately).

What Happens to an RESP If Your Child Doesn't Go to University?

Your Options When a Child Doesn’t Pursue Post-Secondary Education

Not going to university or college does not mean your RESP money is lost. You have meaningful options — some excellent, some costly. Understanding each is critical before making any decision.

Option 1: Wait — Keep the RESP Open

An RESP can remain open for 35 years from the date it was opened. There is no requirement to close it just because a child turns 18.

Best for:

Children who are taking a gap year or working before deciding on school
Children who might decide to enrol in the future (many Canadians return to school in their 30s)
Families who believe school is still likely, just delayed

What happens while you wait:

Money stays invested and continues to grow tax-deferred
No new contributions can be made after year 31 of the plan
The child can access Educational Assistance Payments (EAPs) anytime they enrol in a qualifying program — there is no age deadline for accessing an RESP, only the plan’s 35-year maximum

Option 2: Change the Beneficiary

If one child is certain they will not pursue education, you can change the beneficiary to:

A sibling (most common)
Any other child under 21 who is related to the original subscriber

CESG grant rules on beneficiary change:

If the new beneficiary is a sibling under 21, most CESG grants can transfer without repayment
If the new beneficiary is not a sibling or is 21 or older, all previous CESG grants must be repaid
Family RESPs (with multiple beneficiaries already on the plan) handle this most smoothly

See Can Siblings Share an RESP? and RESP Beneficiary Change Canada for the detailed rules.

Option 3: Transfer Earnings to Your RRSP (AIP to RRSP)

This is often the best outcome after Option 1 and 2 are unavailable.

Conditions to qualify:

The RESP has been open for at least 10 years
The beneficiary is at least 21 years old and not enrolled in a qualifying program
You have sufficient RRSP contribution room
The transfer is capped at a $50,000 lifetime limit per subscriber

What transfers: Only the Accumulated Income Payment (AIP) portion — the investment earnings inside the RESP, not the original contributions and not the CESG grants.

Tax treatment: The AIP transferred to an RRSP is NOT taxed in the year of transfer — it goes in as a regular RRSP contribution (using your room). You pay tax only when you withdraw from the RRSP later, likely at a lower retirement income rate.

CESG grants: Must still be repaid to the government when the plan is closed, regardless of the RRSP transfer. The grants and earnings on grants (the “EAP portion”) are separate from the AIP.

Option 4: Withdraw Your Contributions Tax-Free

Your own contributions to the RESP come back to you completely tax-free — they were made with after-tax dollars and the government does not penalize their return.

You can withdraw contributions at any time, for any reason, without tax or penalty. The restrictions apply only to:

The CESG grants (must be repaid)
The investment earnings (the AIP — taxed + 20% penalty if taken in cash)

Option 5: Take the AIP in Cash (Last Resort)

If you close the plan, have no RRSP room, and the beneficiary change is not an option, you can receive the investment earnings as an Accumulated Income Payment (AIP) in cash.

Tax consequence: AIP amount + 20% additional penalty = your cost.

Your marginal rate	AIP penalty	Total tax rate on earnings
33%	+20%	53%
40%	+20%	60%
45%	+20%	65%

This is costly but better than nothing if the alternatives are unavailable. The contributions still come back tax-free.

Decision Framework

Situation	Best option
Child might still go to school someday	Keep the RESP open — wait
Have a sibling under 21	Change beneficiary
RESP open 10+ years, child 21+, you have RRSP room	Transfer AIP to RRSP
No RRSP room, no sibling, child certain not attending	Withdraw contributions (tax-free) + repay grants + take AIP (pay the penalty)

What You Always Get Back

Regardless of the outcome, your own contributions (up to $50,000 lifetime per plan) always return to you tax-free. You never lose your principal. Only the grants and earnings are affected.