Sometimes we get so good at saving money, we forget to think about how to take it out.
A good example is the Registered Education Savings Plan (RESP), which is the government assisted plan that many parents dutifully opened upon the birth of their children and have been contributing to faithfully ever since.
Now that Jack or Jill is proudly entering university, it’s time to take advantage of the tax sheltered invested proceeds of both the parents’ and the government’s original contributions.
The question is how best to do so?
First of all, the government wants to make sure that the young beneficiary is duly registered as a full-time student in an eligible post-secondary institution.
In fact, no withdrawal is possible until proof of student status is submitted to the financial institution holding the RESP.
Furthermore, until the first 13 weeks of full-time studies are completed, the maximum withdrawal is limited to $5,000, regardless of tuition fees or other actual education costs.
However, thereafter, any amount can be withdrawn from an RESP for any purpose, as long as the beneficiary remains a full-time student.
The caveat is that withdrawals are taxable in the student’s hands. While most students are in a low income bracket, the odd student with other income may have to pay taxes at the end of the year.
Special rules also apply in cases where Jack or Jill does not attend post-secondary studies, they drop out or there are funds left over in an account.
In order to maximize the gift of education to your child, it’s prudent to review the RESP withdrawal conditions on the RESP webpage at www.cra-arc.gc.ca/.