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What to Do with Unused RESP Funds?
 
For a variety of reasons, your child might not require all the money that has accumulated in their RESP.

Maybe your child is simply responsible and frugal. The student could decide to take a break from school with no set return date. Or, possibly, a decision was made not to pursue post-secondary schooling.

 

Whatever the reason, you'll want to make the best use of the remaining funds. This includes mitigating, or delaying, any potential taxes owing.

Keep in mind that, if your RESP is a family-type plan, you could simply shift the funds to another child.

However, if it's an individual RESP (or if there's money remaining in your family RESP after your last child has graduated), there are a few possible paths this could go down.

To begin, the moment you collapse the RESP, any unspent government grant money will be returned to the public purse. This potentially leaves two discrete pools of money for you to deal with:


Original contribution amount

You can withdraw your original contribution amount at any time on a tax-free basis because you paid tax on this money before investing it.

Investment income - Accumulated interest, dividends and capital gains

Any investment income that was earned within the RESP is taxable upon withdrawal and subject to a 20% penalty. However, you have the option to roll as much as $50,000 into your RESP, which will delay the tax payment, provided you have the RRSP contribution room.

Now, chances are the student will have already used up the investment income portion of the RESP, thereby relieving you of any tax burden. That's because, for the purpose of being tax efficient, RESP withdrawal strategies are generally designed to spend this money first.

We're Here to Help

If you require assistance setting up your child's RESP plan, including implementing a tax-efficient withdrawal strategy, speak to your Financial Advisor or contact investor services at 1 800 608 7707.

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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