Congratulations! It's exciting that your beneficiary is ready to start utilizing the funds in your Registered Education Savings Plan (RESP) for their educational pursuits.
Before you make any withdrawals, it's essential to understand the rules and requirements to avoid taxes, penalties, and other potential issues. Below is important information regarding RESP withdrawals:
Eligibility for RESP Withdrawals
To be eligible to withdraw from your RESP, either you or your beneficiary must be enrolled in a qualifying educational program.
Important: If you do not meet the eligibility requirements or request a withdrawal for purposes other than education, you may be subject to taxes and penalties.
Types of RESP Withdrawals
There are two primary types of withdrawals from an RESP:
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Educational Assistance Payment (EAP)
- Funds can be withdrawn only for the beneficiary’s educational expenses, and this includes any government grants on contributions.
- Tax Implications: EAP withdrawals are taxable to the beneficiary. However, since many beneficiaries have little or no income, this often results in minimal or no taxes.
-
Post-Secondary Educational Capital Withdrawal (PSE)
- Funds can be withdrawn by either the subscriber or the beneficiary, but government grants cannot be included in this type of withdrawal.
- No tax: PSE withdrawals are not taxable.
Important: If an RESP withdrawal is made for purposes other than education, it will be considered a Non-Educational Capital Withdrawal (NCW). In this case:
- Government grants paid into the RESP will be returned to the government.
- Your contribution room will not be returned.
You may not be eligible to receive the same amount of grants in the future.
RESP Withdrawal Process
When you're ready to withdraw from your RESP, you will need to provide the following documents to the OneVest support team:
- A completed RESP Withdrawal Form for each withdrawal request.
- A void cheque or direct deposit information for payment instructions. If making an EAP withdrawal, the void cheque must be in the beneficiary's name.
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Proof of enrolment:
- A letter from the post-secondary institution (including the name and address), indicating the student is enrolled in a full or part-time program. The letter must be signed and stamped by the institution.
Alternatively, a copy of the official course schedule along with a valid student ID (double-sided) can be provided.
Important Notes on RESP Withdrawals
- One-Time or Recurring Withdrawals: Only the primary account holder can request one-time or recurring withdrawals.
- Government Grants and Investment Income: Funds received as government grants or investment income can only be withdrawn for the beneficiary’s education, and they are subject to tax upon withdrawal.
- Part-Time Enrollment: If the beneficiary is attending an eligible educational institution part-time, they may be eligible to receive up to $2,500 per 13-week semester if they complete at least 12 hours of coursework per month.
Refund Eligibility and Other Considerations
- Non-Educational Capital Withdrawals (NCWs): If you make an NCW, the government contributions will be returned to the government. Additionally, contribution room will not be restored, and you may not be eligible to receive grants in the future.
- Contribution Room: The contribution room is the amount you can contribute to your RESP without triggering tax penalties. Contributions are subject to a lifetime maximum.
Disclaimers:
This article does not represent a tax or investment strategy recommendation. You should consult with a tax advisor or financial professional to ensure this is the right move based on your personal financial situation.
Manzil Invest is a strategic partnership between Manzil and OneVest Management Inc (“OneVest”). OneVest offers wealth management products and services to Manzil customers. OneVest Management Inc. is a registered Portfolio Manager in each of the provinces and territories of Canada and as an Investment Fund Manager in the provinces of Alberta, Ontario, Newfoundland and Labrador, and Quebec. Assets in your OneVest accounts are held with various custodians, each registered as an investment dealer with the applicable securities regulators. All custodians are members of the Canadian Investment Regulatory Organization (“CIRO”) and the Canadian Investor Protection Fund (CIPF). OneVest is a wholly-owned subsidiary of OneVest Technologies Inc. All trademarks are the property of their respective owners. OneVest will determine what investments are suitable for you.
