It’s easy to get caught up in the excitement of another school year and forget about some of the smaller details—like the timing of your next RESP withdrawal!
Do you have a Registered Education Saving Plan (RESP) to help pay for your post-secondary education? You might not know exactly how to pull funds out of it.
Whether you’re a parent contributing to your child’s RESP, or you’re about to use your RESP for the first time, we’ve put together this guide to help you out.
So, how do RESPs work? And what do you need to know before withdrawing from one? Let’s jump into it:
An RESP offers unique tax benefits and the ability to receive government grant money, all to help students cover tuition costs.
The person who contributes to the account is called the subscriber. The person who withdraws from it is called the beneficiary.
The advantage an RESP offers is that withdrawals are taxed at the beneficiary’s tax rate instead of the subscriber’s.
Remember, your tax rate is determined by the amount of income you make in a year. Since students typically have a lower income, this means that they pay less in taxes.
Tax tip: Unlike an RRSP, contributions to an RESP are not tax deductible. They won’t give you a tax break.
If you invest the money you hold in an RESP, those investments can grow tax deferred. This means that students will only pay taxes on those earnings once the money is withdrawn.
An RESP can be opened by a parent, a grandparent, a family friend, an individual funding their own education, or separated parents (who can open an account for their child as joint subscribers).
Once the account is opened, anyone can contribute to an RESP, whether that’s a grandparent or a family friend. However, you will need the social insurance number (SIN) of the beneficiary to make a contribution.
If the plan subscriber isn’t comfortable sharing that information, you could gift them the money to contribute on your behalf.
In addition to the money that the subscriber contributes to an RESP, the beneficiary can also receive money from the federal government.
If your child does not end up using the RESP for their post-secondary education, the grant money may be taken back.
In Manitoba, there are two federal grants you can take advantage of:
When you contribute to a child’s RESP, the government will match 20% of those contributions (up to $500 annually) through the CESG.
That means you need to contribute $2,500 annually to take full advantage of the grant.
If you can’t contribute the full amount for one year, don’t worry—any unused contribution room is carried forward to the next year.
How much money does the government contribute to an RESP? The CESG has a lifetime maximum of $7,200 per beneficiary.
For low-income families, the CLB provides up to $2,000 towards a child’s post-secondary education. Unlike the CESG, no subscriber contributions are required to receive the bond money.
Any child born after 2004 may be eligible to receive the funds.
There are a few ways you can withdraw from an RESP.
Remember that any money in the RESP is controlled by the subscriber, not the beneficiary. To withdraw money from an RESP, the subscriber’s consent is required.
You’ll need two documents before you can make the withdrawal request:
It may take time to obtain these documents and complete the withdrawal. Be sure to note the dates that tuition fees are due ahead of time so that you aren’t scrambling to pull the funds out of your RESP!
There are two types of RESP withdrawals, each with different tax implications:
Educational assistance payments are made up of investment earnings and government grant money in the RESP.
As a result, the beneficiary must report withdrawals from the EAP as income on their tax return.
RESP withdrawal rules were recently updated in the 2023 federal budget changes. Here’s how EAP withdrawals work:
Post-secondary education payments are made up of the subscriber’s base contributions in the RESP. This excludes any income earned through investments or grant money.
Since these contributions have already been taxed, the beneficiary does not pay taxes on PSE payments.
Unlike EAPs, there is no limit on the amount of PSE contributions that can be withdrawn at once.
As a student, you need to balance your budget with the funds available in your RESP, scholarships you may receive, and any income you may earn from a part-time job.
How can you spread out your income over the next semester to cover all your costs?
You may want to consider questions like:
Check out our blog on how to budget as a student for a closer look at how to manage your finances.
Drop us a line—we’re here to help! You can always book an appointment to ask us any questions you might have about RESPs. We’re happy to meet with you online or in person at one of our locations in Winnipeg or Selkirk!
We would be happy to discuss your unique situation with you.
Our goal is to make complex topics like this one, simple.
It takes less than 5 minutes to make an appointment or to apply online. It is up to you how you want to meet your advisor - you will have the option to meet your advisor:
