Maximizing Your RESP: Withdraw Wisely

A Registered Education Savings Plan (RESP) is a Canadian registered investment account that promotes saving to support a beneficiary’s post-secondary education. Anyone — parents, family and friends — can open a RESP as a “subscriber” for the benefit of a child. Invested contributions grow tax free.

When the time comes to withdraw funds for post- secondary education purposes, many subscribers wonder: is there a best approach to maximize the RESP’s value and minimize taxes?

An example: When Joe was born, his grandparents followed their wealth advisor’s advice and opened a RESP family plan for Joe, and other future grandchildren, to save for their post-secondary education. Their regular contributions, along with eligible government grants, were invested wisely and have grown steadily tax free over the years.

Now — in what seems like the blink of an eye — Joe will be off to his first year of university, and his grandparents want to withdraw from the RESP to support him during his first year. The RESP account administrator has asked for instructions on how to withdraw from the RESP, should it be taxable receipt, a non-taxable receipt or a combination?

The following withdrawal is a taxable income receipt:

  • Educational Assistance Payments (EAPs), consist of the Canada Education Savings Grant (CESG), the Canada Learning Bond (CLB), provincial education savings grants (if applicable) and any earnings generated on the contributed funds within the RESP. The money can be used to pay for any “reasonable” expenses while the beneficiary is enrolled in a qualifying post-secondary program, including tuition, books, rent and food.

The following withdrawal is a non-taxable capital receipt:

  •  A tax-free return of contributions from the plan. There are two terms used to describe these capital withdrawals, depending on the beneficiary’s eligibility to receive EAPs:

    • Post-Secondary Education Payment (PSE).
      A PSE is a tax-free withdrawal of contributions made during the time a beneficiary is eligible to receive EAPs. It may be paid to the subscriber or beneficiary. No repayment of grants is required.
    • Withdrawal of Contributions. This term varies across institutions, but it is effectively a tax-free withdrawal of contributions made at a time when the beneficiary is not eligible to receive EAPs. The subscriber may withdraw their contributions, but may be required to repay some or all grant amounts in the RESP.

Here are a few key considerations for Joe’s grandparents to help make the most of the RESP:

  1. Withdraw Educational Assistance Payments (EAPs) first
    • EAPs are considered taxable income to the beneficiary for the year in which they are withdrawn. For this reason, it’s usually better to access EAP payments early in the student’s post-secondary career, when they are likely to have lower income and access to basic personal amount and tuition and education credits which may result in little to no tax payable on such withdrawals.
    • Joe is eligible for EAP withdrawals while he is enrolled full-time or part-time in a qualifying post-secondary educational program and would remain eligible within a six-month period after leaving school (among other conditions).

Note: Withdrawals are limited to$8,000 for full-time students (or $4,000 for part-time students) during the first 13 weeks of post-secondary education. Once the 13 weeks have passed, any available amount of EAP can be withdrawn.

  1. Plan to withdraw contributions as Post-Secondary Education Payments (PSEs)
    • The contributions Joe’s grandparents made to the RESP can continue to grow tax-free within the account but can be withdrawn from the plan at any time. For example, Joe may need additional funds beyond his EAP payments as he progresses through his program, so his grandparents should consider making a tax-free PSE withdrawal while he is enrolled and eligible.
    • If Joe needs access to funds when he is not eligible for EAP payments – say he decides to take a year off school to work or travel – contributions can still be withdrawn tax-free, but the government grants associated with those contributions may need to be repaid.
  2. Transfer unused funds to another beneficiary or RRSP
    • RESPs can remain open and continue to grow tax-free for 35 years, but occasionally a beneficiary will decide against or be unable to pursue post-secondary education. In this case with Joe, as he has a younger sister Kim, the contributions and accumulated growth in the RESP could easily transfer to his sister Kim.

Note: Joe’s CESG, CLB and provincial grants may only transfer in certain circumstances.

    • It may also be possible to name another beneficiary to an individual or family RESP subject to certain rules and fees.
    • If a transfer is not possible, it may be necessary to close the RESP. Original contributions are returned to the subscriber tax-free, and the CESG, CLB and provincial grants are returned to the government. Joe’s grandparents should know that any remaining income earned within the plan that cannot go to another beneficiary would be paid out to them as an Accumulated Income Payment (AIP) and taxed at their marginal tax rates in the year they receive it plus an additional 20% penalty if the RESP needed to be closed. For this reason, it’s a good idea for them to plan withdrawals carefully while Joe is still in school. They may be able to avoid the penalty and defer the taxes on the AIP by transferring the AIP to an RRSP account if they have the contribution room.

When withdrawing from an RESP, there are a variety of considerations to keep in mind, such as is this the first time the beneficiary is attending post-secondary education, are they attending full or part-time, and what makes the most sense – withdrawing EAP and/or PSE. This RESP decision tree outlines the different withdrawal options available depending upon the student’s circumstances.

The opinions contained herein are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Wellington-Altus Private Wealth. Assumptions, opinions and information constitute the author’s judgement as of the date this material and subject to change without notice. We do not warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Graphs and charts are used for illustrative purposes only and do not reflect future values or future performance of any investment. The information does not provide financial, legal, tax or investment advice. Particular investment, tax, or trading strategies should be evaluated relative to each individual’s objectives and risk tolerance. All third party products and services referred to or advertised in this presentation are sold by the company or organization named. While these products or services may serve as valuable aids to the independent investor, WAPW does not specifically endorse any of these products or services. The third party products and services referred to, or advertised in this presentation, are available as a convenience to its customers only, and WAPW is not liable for any claims, losses or damages however arising out of any purchase or use of third party products or services. All insurance products and services are offered by life licensed advisors of Wellington-Altus. Wellington-Altus Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. All trademarks are the property of their respective owners.

Amy Sweeney

AMY SWEENEY

Associate

Amy was born and raised in Squamish, is David’s oldest daughter and now the newest member of the Sweeney Bride team. Many may recognize her as she has worked periodically for the team for over 20 years. For the past five years, she has gained administrative experience and more running her own business as a Kinesiologist after completing a bachelor’s degree in Kinesiology at the University of British Columbia in 2016. Now, Amy is officially ready to join the finance industry. Currently residing in North Vancouver, Amy spends all her “free” time raising Dave’s two wonderful grandchildren.
Liam Hill

LIAM HILL

Associate Investment Advisor

Originally from Sydney, Australia, Liam moved to the Sea to Sky region in 2013, leaving the beaches behind to embrace the mountains. He hasn’t looked back since and enjoys exploring the wilderness by both land and sea.

Liam’s unique strength lies in his capacity to adapt and fine-tune strategies to match the ever-changing financial world. He’s a passionate advocate for adaptability and flexibility, believing these traits are crucial for securing financial well-being.

Liam holds the Canadian Securities Course qualification and is currently pursuing the Chartered Investment Manager (CIM) designation.

He shares his industry knowledge and business skills to empower individuals, families, and businesses on their path to financial success.

Liam is committed to educating our clients about the financial services industry and helping them make the most of available resources to achieve prosperity.

SHARON FIELDS

Administrative Assistant

Sharon worked for Sweeney Bride from 2014 to 2016 and recently rejoined the team as an Administrative Assistant in 2021. She has years of administrative experience in a variety of industries including working in legal and accounting firms. She enjoys being detailed, organized and efficient. When not hard at work, she enjoys exploring the great outdoors with her dogs, playing co-operative strategy board games and relaxing while sipping a nice Craft beer.

Carrie Freitag

CARRIE FREITAG

Administrative Assistant

Carrie is the newest member of our team and is our Administrative Assistant. She has previous industry and administrative experience and her fascination with the finance industry is rapidly growing. Carrie moved to BC in 1994 from Ontario and never looked back. While not working she loves hanging out with her two kids, awesome cat Leo, and enjoys a competitive game of 21, and her gardens.

Katie Norton

KATIE NORTON

Associate

Katie is a Business Administration graduate who joined the Sweeney Bride team in 2016. She takes care of on-boarding as well as managing account administration for our existing clients. She works hard to ensure the clients feel supported throughout the on-boarding process and is always available to answer questions.

A BC resident since 1997, Katie and her husband moved to Squamish to raise their two girls. They enjoy all of the outdoor activities and natural beauty that Squamish has to offer.

Liz Woodsworth

LIZ WOODSWORTH

Office Manager

Liz joined the Sweeney Bride team in 2015 as office manager. She is the gatekeeper in the office and is the face that greets you as you come through the door. If she can’t help you, she will ensure you speak with someone who can. Liz is a long-time Squamish local; when not in the office she spends her days soaking up all that this town has to offer while chasing her two active boys. Liz brings her valuable organizational skills and enthusiastic attitude to the team. 

Janet Bride

JANET BRIDE

CFP®, CIM® | Senior Wealth Advisor

Janet Bride is a Senior Wealth Advisor at Wellington-Altus Private Wealth and co-founder of the Sweeney Bride Strategic Wealth Advisory team.

With over 15 years’ experience in the Industry Janet holds the Chartered Investment Manager (CIM®), CERTIFIED FINANCIAL PLANNER®, and Elder Planning Counselor (EPC) designations and is also Insurance licensed.

Janet grew up in Ontario and moved out to beautiful British Columbia in 1995 with her husband, Paul, who is an adventure travel photographer. Her passion is to travel the world. Always interested in exploring different cultures and landscapes, she is grateful to have traveled to over 50 countries across 6 continents. She also enjoys continuous learning, spontaneous adventures with family and friends, and an active lifestyle in the Sea to Sky. Janet is proud to be a Big Brothers Big Sisters Alumni member since 2004.

She is highly motivated by helping people reach their financial dreams by creating comprehensive financial plans for individuals & families. While using a holistic approach to wealth management, she specializes in tax strategies and her goal is to encourage savings and help build our client’s wealth for a healthy and prosperous future.

David-Sweeney

DAVID SWEENEY

CFP®, CIM® | Senior Wealth Advisor

Dave Sweeney is a Senior Wealth Advisor at Wellington-Altus Private Wealth and co-founder of the Sweeney Bride Strategic Wealth Advisory team.

With over 31 years’ experience in the Industry Dave holds the Chartered Investment Manager (CIM®), CERTIFIED FINANCIAL PLANNER®, and Elder Planning Counselor (EPC) designations and is also Insurance licensed.

Dave has lived in Squamish for most of his life. Married to his wife Donna, since 1987, they proudly have 3 lovely daughters, Amy, Danielle and Jamie. With his time in Squamish, it has allowed him an opportunity to become involved in many valuable groups.

Dave is a retired Captain of Squamish Fire Rescue after 35 years of service. Another passion was sports and he has been a coach for Squamish Youth Soccer Association where he dedicated 10 years to coaching girls Rep teams. Additionally, he is a former member and Treasurer of the Sea to Sky Community Services Board. Dave is a frequent contributor to Mountain FM’s Mountain Monitor, providing general advice and financial commentary.

Dave continues his volunteer work as Treasurer for both the Squamish Hospital Foundation and the Squamish Downtown Business Improvement Association. He is also a sitting Board member of the Squamish Community Foundation.

Professionally, Dave started his Financial Planning practice in 1994. After living through both his parents’ demise and witnessing what a lack of understanding they had, he realized what sound planning techniques could do to ensure that an untimely death did not destroy one’s lifetime work. For over 20 years, he has made it his passion to assist others in not facing the same plight.