So, you did your homework and started a RESP for your child. Bravo! However, now junior is grown up and ready to go off to University – YIKES! Where did the time go? Certainly, time can seem as fleeting as our money. Below are some tips to ensure the RESP you so diligently cared for will yield the best results.
When can you start withdrawing from your child’s RESP?
Once a child is enrolled in a qualifying post secondary program, the RESP subscriber (usually a parent) can withdraw money on behalf of the child.
What are the tax implications of RESP withdrawals?
The RESP balance is made up of three different pools.
Plan to ensure the RESP account is fully withdrawn before the child graduates. There is a grace period of six months after graduation for the RESP to be fully withdrawn or transferred. Otherwise, there are penalties.
Ways to transfer the balance and avoid penalties
What are the penalties?
If the RESP is not fully withdrawn before the six-month deadline, any remaining government grant will have to be repaid to the government and any investment income becomes immediately taxable at your child’s marginal rate plus 20%. The contribution portion can still be withdrawn tax free even if the child has graduated. We suggest speaking with your financial institution about how you would like these funds handled ahead of time. Feel free to contact us if you have any other questions.