A Registered Education Savings Plan (RESP) is a government-registered account designed to help families save for a child’s post-secondary education. Contributions are made with after-tax dollars, enhanced by government grants, and invested to generate tax-deferred growth.
It’s more than just a savings account, it’s a powerful way to invest in your child’s education while taking advantage of government incentives. Knowing how to withdraw funds correctly is just as important as your savings plan. By understanding the rules, limits, and strategies around RESP withdrawals, you can maximize value and reduce unnecessary taxes.
How RESP withdrawals work
An RESP is made up of three components: contributions you deposit, government grants added through programs such as the Canadian Education Savings Grant (CESG) or the Canadian Learning Bond (CLB), and investment growth from interest, dividends, or capital gains.
When it’s time to withdraw, RESP funds can be accessed in two main ways:
- Educational Assistance Payments (EAPs): This consists of government grants and investments earnings. EAPs are taxable in the student’s hands, but because students typically have limited income, the tax payable is often minimal.
- Post-Secondary Education (PSE) Withdrawals: This represents the original contributions made to the RESP. Since contributions are made with after-tax dollars, they are always withdrawn tax-free.
To request an EAP, proof of enrolment from the post-secondary institution is required. This typically lists the student’s name, student number, institutions, and the courses they registered in.
In the first 13 weeks of enrollment, EAP withdrawals are capped at:
- $8,000 for full-time students
- $4,000 for part-time students
After the initial period, withdrawals are unlimited as long as the student remains enrolled.
Withdrawal strategy
The order in which funds are withdrawn has a direct impact on the overall benefit of the RESP. A common approach is to access EAPs (grant and growth) first while the student has low or no income, Doing so minimizes taxes and ensures grant money is used before it must be returned.
Contributions, which are always tax-free, can then be saved for later years or for other uses if the child doesn’t need them during school.
HOT TIP: It’s a good idea to withdraw grant money and investment income first for two reasons: One, any unused grant money will be reimbursed to the government once the student completes their schooling, unless it can be transferred to a sibling. Two, your funds will continue to earn income within your RESP, so you can continue to grow your investment while your child is in school.
If the beneficiary doesn’t attend post-secondary
RESPs remain flexible even if the child chooses not to pursue higher education.
Options include:
- Contributions: Returned to you, tax-free.
- Grants: Repaid to the government.
- Investment Growth: Can be transferred to your Registered Retirement Savings Plan (RRSP), up to a lifetime limit of $50,000 (subject to available contribution room), or withdrawn in cash. Cash withdrawals are fully taxable and subject to an additional penalty.
Making a withdrawal
When it’s time to make a withdrawal, the process is straightforward:
1. Contact your RESP provider.
2. Provide proof of enrolment (such as a letter of acceptance or registration).
3. Indicate how much you want to withdraw and from which source (contributions or EAP).
4. Receive the funds directly into your account or your child’s bank account, depending on your instructions.
Example in action
Let’s say you contributed $30,000 into your RESP. The government added $7,200 in grants through CESG, which is the maximum lifetime amount available to each child. Your investment earned another $10,000 and that brings your total RESP to $47,200.
When your child goes to university, you might choose to withdraw $5,000 as an EAP (which is taxable to them but likely results in little to no tax) and $3,000 as a PSE withdrawal (which is completely non-taxable). This balance approach allows you to fund education expense while minimizing taxes.
The bottom line
Every dollar in an RESP has a purpose—your contributions, government grants, and investment growth all play a role. With the right withdrawal strategy, you can stretch those savings further, reduce taxes, and keep more money working for your child’s education.
You've worked hard to save, now use your RESP wisely and make the most from it.
