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Strategically withdrawing money
from an RESP


Upon enrolling in an eligible post-secondary school as a full-time student, the beneficiary can begin withdrawing funds. You want to approach withdrawals strategically to ensure the funds are taken out in the most tax-efficient way possible. An RESP account contains two separate pools of funds, which are subject to different tax treatment:
 

  • Original contributions: A post-secondary education capital (PSE) withdrawal is money taken from the capital you invested. There are no tax implications to this type of withdrawal.
  • Grants and plan earnings: An education assistance payment (EAP) withdrawal is money taken from any government grants to the plan and accumulated earnings. When EAP money is withdrawn, it counts as income in the hands of the beneficiary.


Each time you take money out of the RESP, you must tell your provider which funds you are accessing.
 

Withdrawal strategy for
lower-income students

Most students don't have to worry about paying tax on their RESP withdrawals. That's because their income is low to start and they also have tuition costs and other tax credits that keep their income below the taxable threshold.

For these students, it's generally advisable to start by withdrawing the maximum from the EAP pool until the funds are gone. At this point, should your child graduate or leave school when there are still funds in the plan, you're protected. Since the grant money is used up, you won't have to give any back to the government. And because the remaining funds consist of your original contributions to the plan, you can remove it without paying tax.

 

Withdrawal strategy for
higher-income students

Some students may earn, in any given year, sufficient income to wind up owing tax. In these years, it's advisable to withdraw funds from the non-taxable PSE pool, which consists of the original capital you invested.

There's lots to learn about RESPs. It's a good idea to educate yourself thoroughly to ensure you get the most benefit from
your RESP investments.

 

 

Additional Information 

Benefits of an RESP

  • Up to $7,200 in Government Grants
  • Tax-Sheltered Growth
  • Flexible Investment Options
  • Tax Savings

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