RESP Withdrawal Basics
Two Types of Withdrawals
| Withdrawal Type | What It Is | Tax Treatment |
|---|---|---|
| PSE (Post-Secondary Education) | Your contributions | Tax-free (your money back) |
| EAP (Educational Assistance Payment) | Grants + growth | Taxable to student |
EAP Limits
| Enrollment Period | EAP Maximum |
|---|---|
| First 13 weeks of enrollment | $8,000 |
| After first 13 weeks | No limit |
Strategy: Request larger EAP after 13 weeks to avoid limit.
Tax Optimization Strategy
The Student’s Tax Situation
| Typical Student Income | Amount |
|---|---|
| Part-time job | $5,000-10,000 |
| RESP EAP | Variable |
| Basic Personal Amount | ~$15,700 |
| Tuition tax credit | Additional credit |
Result: Most students can receive $10,000-20,000+ of EAP with minimal or no tax.
Example: Spreading EAP Over 4 Years
| Year | Tuition | Other Income | EAP Withdrawn | Taxable Income | Tax |
|---|---|---|---|---|---|
| 1 | $8,000 | $6,000 | $12,000 | $8,000 | ~$0 |
| 2 | $8,000 | $7,000 | $12,000 | $9,000 | ~$0 |
| 3 | $8,000 | $8,000 | $12,000 | $10,000 | ~$200 |
| 4 | $8,000 | $9,000 | $8,800 | $7,800 | ~$0 |
Total EAP: $44,800 | Total tax: ~$200
The Wrong Way
| Scenario | Impact |
|---|---|
| Withdraw all EAP in Year 1 | $44,800 taxable |
| Student’s other income | $6,000 |
| Total taxable | $50,800 |
| Estimated tax | ~$5,500 |
Spreading saves ~$5,300 in taxes!
Withdrawal Order Strategy
Recommended Order
| Priority | Withdrawal Type | Why |
|---|---|---|
| 1 | EAP first | Taxed at student’s low rate |
| 2 | PSE if needed | Tax-free, but no growth |
| 3 | Keep PSE for flexibility | Can be withdrawn anytime |
Why EAP First
| Reason | Explanation |
|---|---|
| Tax advantage | Student pays less tax than parent |
| Growth continues | PSE left invested keeps growing |
| Flexibility | PSE can always be withdrawn |
| Grant maximization | Use all grant money |
Step-by-Step Withdrawal Process
What You Need
| Requirement | Details |
|---|---|
| Proof of enrollment | Letter from institution |
| Eligible institution | Post-secondary (university, college, trade school) |
| Program qualification | At least 10 hours/week |
| Withdrawal form | From RESP provider |
How to Request Withdrawal
| Step | Action |
|---|---|
| 1 | Get proof of enrollment from school |
| 2 | Contact RESP provider |
| 3 | Specify EAP vs PSE amount |
| 4 | Funds sent to student (EAP) or subscriber (PSE) |
| 5 | T4A issued to student for EAP |
What Qualifies as Education
Eligible Programs
| Program Type | Eligible? |
|---|---|
| University degree | Yes |
| College diploma | Yes |
| Trade/vocational | Yes |
| Apprenticeship | Yes |
| Online programs | Yes, if at eligible institution |
| Part-time studies | Yes (reduced hours OK) |
| Foreign institutions | Often yes |
EAP Can Be Used For
| Expense | Eligible? |
|---|---|
| Tuition | Yes |
| Books and supplies | Yes |
| Computer | Yes |
| Living expenses | Yes |
| Transportation | Yes |
| Food | Yes |
EAP money doesn’t need to match tuition — it can cover any living expenses.
If Child Doesn’t Attend Post-Secondary
Option 1: Wait
| Feature | Details |
|---|---|
| Time limit | 35 years from opening RESP |
| Why wait | Child may attend later |
| Growth | Continues tax-sheltered |
Option 2: Change Beneficiary
| Feature | Details |
|---|---|
| Family RESP | Transfer to sibling |
| Individual RESP | Can still change beneficiary |
| Grants | May need adjustment or repayment |
Option 3: Transfer to RRSP
| Feature | Details |
|---|---|
| What transfers | Up to $50,000 of AIP (growth) |
| Requirement | RRSP contribution room |
| RESP age | Open 10+ years |
| Child | No qualifying beneficiary exists |
| Grants | Must be repaid |
Option 4: Collapse and Withdraw
| Component | Treatment |
|---|---|
| PSE (contributions) | Tax-free withdrawal |
| Grants | Returned to government |
| AIP (growth) | Taxable + 20% penalty |
AIP Tax Calculation
| Factor | Amount |
|---|---|
| RESP growth (AIP) | $30,000 |
| Your marginal tax rate | 40% |
| Additional penalty | 20% |
| Total tax | $18,000 (60% of AIP) |
Try to avoid AIP withdrawal — transfer to RRSP is much better.
Part-Time vs Full-Time Students
Full-Time
| Requirement | Details |
|---|---|
| Course load | 10+ hours/week |
| EAP limit | $8,000 first 13 weeks |
| After 13 weeks | No limit |
Part-Time
| Requirement | Details |
|---|---|
| Course load | 12+ hours/month |
| EAP limit | $2,500 per 13-week period |
| Annual maximum | ~$10,000 |
Gap Years and Breaks
Taking Time Off
| Situation | RESP Options |
|---|---|
| Gap year before school | Wait to withdraw |
| Break during studies | Withdraw next semester |
| Switching programs | Still eligible |
| Dropout | Can resume later |
Time Limits
| Rule | Details |
|---|---|
| EAP timing | Must be enrolled or within 6 months |
| RESP closing | 35 years from opening |
| Flexibility | Significant time to use funds |