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Withdrawing Unused Education Savings - RESP VS TFSA VS ITF
October 20, 2020

What if you saved for your child's higher education, but the child ends up not needing all the funds or not pursuing post-secondary studies at all?

At some point, you'll want to use this money for another purpose. However, depending on the savings vehicle you chose, there will be factors to consider before making a withdrawal.


Registered Education Savings Plan (RESP)

The moment you collapse an RESP, any unspent Canada Education Savings 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) — These earnings are taxable upon withdrawal and subject to a 20% penalty. However, you have the option to roll as much as $50,000 into your RRSP, which will delay the tax payment, provided you have the RRSP contribution room.

In Trust For (ITF)

The money you've saved in an ITF account can be used for anything that would benefit your child or grandchild if they decide not to pursue post-secondary schooling. The contributor is responsible for tax on interest and dividends, while the beneficiary is responsible for tax on capital gains.

The benefits of an ITF include the fact that you can contribute as much money as you want, and capital gains get taxed in the hands of the child. Also, if funds for an in-trust account come solely from Child Tax Benefit payments or an inheritance, income is taxed in the hands of the child.

Tax-Free Savings Account (TFSA)

The beauty of using a TFSA to save for your child's education is that, should your child decide not to pursue higher learning, there are no restrictions whatsoever on how the money gets used. 

Keep in mind that a TFSA cannot be opened in the name of a child under the age of 18. But as a parent or grandparent who has opened a TFSA, you can choose to use the money you've saved for any purpose.

You simply put money in and watch it grow tax-free until you need it. Also, you may withdraw it at any time without a tax penalty or even much paperwork.


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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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