Getting money out of a Registered Education Savings Plan (RESP) is easy. Getting the most value out of one takes a bit more work.
That distinction matters more than most families realize and September is when it comes up constantly.
The mechanics are simple. The strategy is not.
Withdrawing from a Registered Education Savings Plan requires documentation from the school’s registrar and a few administrative steps by your financial institution. Straightforward.
Inside every RESP, the government tracks two separate pools of money. Your original contributions come out tax-free. Everything else, the Canada Education Savings Grant and accumulated investment growth, comes out as Education Assistance Payments, or EAPs, taxed in the student’s hands. This is usually favourable because students tend to have low income. The order and timing of withdrawals affects how much tax is paid and by whom.
Most families pull money out without thinking about this and leave value on the table.
The two mistakes that cost the most
Leaving money in the account too long. An RESP does not last forever. If the funds are not used for education, the government claws back the grants and the remaining growth is taxed at your marginal income tax rate plus a 20% penalty.
There is one meaningful exception. If Registered Retirement Savings Plan (RRSP) contribution room is available, up to $50,000 of unused growth can be transferred directly to an RRSP which eliminates both the tax and the penalty. Whether that room currently exists, or can be built up over time, is part of the planning conversation.
Treating the RESP as a single pool. If you have more than one child, each child has their own sub-account with its own grant and contribution history. One child may pursue a more expensive educational path, a four-year university program, followed by a professional degree. Another may take a two-year diploma. The withdrawal strategy should reflect those differences, not treat every child the same.
What smart RESP withdrawal looks like
It starts with the full picture. How many children? What educational paths are they likely to take? What income will they have while in school? Are they living at home or away?
From there, the strategy is about sequencing, taking the right amounts from the right sub-accounts in the right years to minimize tax, preserve flexibility for each child, and make sure every dollar of grant money is used for its intended purpose.
Done well, the RESP does not just pay tuition. It does it in the most tax-efficient way possible, with flexibility built in for the unexpected, a child who takes a gap year, changes programs, or needs more support in one year or another.
Getting the most out of an RESP is fairly simple once you know what to look at, but it does require looking at the whole family picture rather than just mechanically processing a withdrawal.
If your child is heading into post-secondary education this fall, or will be in the next year or two, this is worth a conversation before you begin pulling money out. Reach out and we will walk through it together.
Conrad Kluge CFA, CFP leads the Kluge Wealth Advisory Group and is a financial advisor at Wellington-Altus Private Wealth, working with high-net-worth families in Calgary, Alberta. This post is for informational purposes only and does not constitute investment advice. Please consult with a qualified financial professional regarding your specific situation.