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

A child deciding against university or college doesn’t mean the RESP money is lost. Your own contributions always come back tax-free, and there are several ways to keep the grants and the growth working. This page compares the options when a beneficiary doesn’t go on to post-secondary school, and what happens to each part of the plan under each one. The account rules as a whole are in the complete RESP guide, and every related guide is in the RESP hub.

What happens to each part of the plan

An RESP holds three kinds of money, and the rules treat them differently:

Option 1: Keep the plan open

Many students start later: after a gap year, a few years of work, or in their twenties or thirties. The plan can stay open until the end of the year that includes its 35th anniversary, and the money keeps growing tax-sheltered in the meantime. No new contributions are allowed after the year of its 31st anniversary, but Educational Assistance Payments can be paid whenever the beneficiary enrols in a qualifying program.

Qualifying programs are broader than many parents expect: college, CEGEP, trade school and the school terms of an apprenticeship all count, as explained in using an RESP for trade school.

Option 2: Name another child

The grants can stay in the plan if the new beneficiary is a brother or sister of the original one and under 21, or if both children are under 21 and related by blood or adoption to the subscriber. Any other change sends the CESG back to the government, though the contributions and growth stay. The detailed rules, including how the Canada Learning Bond is handled, are in changing an RESP beneficiary.

In a family plan, a brother or sister who is already a beneficiary can simply use the money, with no change needed; see can siblings share an RESP.

Option 3: Move the earnings to your RRSP

If the plan’s income can’t be paid to a student, it can be paid to the subscriber as an accumulated income payment (AIP), which is taxed as the subscriber’s income plus an additional 20% (12% federal for Quebec residents). An original subscriber with unused RRSP room can instead put up to $50,000 of it into their own or a spousal RRSP and avoid the additional tax on that amount. The conditions (plan age, the beneficiary’s age, residency and timing) and the tax math are covered in transferring an RESP to an RRSP.

Option 4: Take back your contributions

Contributions can be refunded at any time without tax, whatever else happens to the plan. If the child isn’t enrolled when they come out, the plan may have to repay grant that those contributions attracted, so taking contributions while leaving the rest in place usually makes sense only once it’s clear no beneficiary will use the grants.

Option 5: Close the plan

Closing the plan returns the contributions tax-free and the grants to the government, and pays out the income as an AIP. Any AIP that isn’t rolled into an RRSP bears the subscriber’s regular tax plus the additional 20%, which can take a large share of it. Closing is the most expensive option, and it is usually left until waiting and a sibling are both ruled out.

Comparing the options

Whichever route is chosen, the contributions (up to the $50,000 lifetime limit per beneficiary) come back tax-free. Only the grants and growth are at stake.