You are excited and nervous. Your child has grown up, and they are now about to attend a secondary educational institution. It’s time to cash out that RESP!
But it isn’t as simple as calling your advisor and saying “Give me the money!”
As the RESP money is likely invested in something, there are a number of things you need to consider and plan for:
You can’t normally withdraw the funds on a moment’s notice. This is especially true if the funds are in GICs with locked in maturity dates or Stocks/Mutual Funds that need to be sold.
There are a number of due dates that you will need to meet.
The institution is not going to hand over cash during a phone call. You will need to fill out some forms. And then they will need to process those forms. So don’t leave this to the last moment!
Is there a fee for withdrawing the money? Chances are there is a service fee for de-registering the money. If so, you don’t want to be pulling the money out multiple times and therefore paying multiple fees.
Dates to consider when withdrawing the money:
NOTE: you can only withdraw up to $5000 in the first 13 weeks of College/University/… This is the government’s way of ensuring that the money isn’t completely withdrawn the first semester and the student unable to continue.
Week 14 you could withdraw the remainder if you so choose. However, remember the tax implications for timing of withdrawal (e.g. wait for the calendar year roll-over, if you withdraw all Grants and Gains at once it is all taxable).
This is a must. The government will require this, or you will be penalized and taxed on the withdrawals.
As you can only withdraw up to $5000 during the first 13 weeks of post secondary education, you must designate which component(s) of the RESP this money is coming out of.
There are 3 components to the money within the RESP:
This is the money that the Subscriber contributed to the RESP. This money can go to the student, or, it can be returned to the subscriber. This money is withdrawn tax free as it was after tax dollars when deposited into the RESP.
This is money that was deposited into the RESP by the government. This money must go to the student. This money is taxable in the hands of the student.
If the student doesn’t complete their studies, they loose any outstanding grant money within the RESP (it must be returned to the government).
This is gains made within the RESP through the investing of the contributions and grants. This money must go to the student. This money is taxable in the hands of the student.
If the student doesn’t complete their studies, then there are penalties for the growth.