How to use your RESP if your child doesn’t pursue post-secondary education
Your child may initially choose a post-secondary education path or career that doesn’t require a college or university degree. If you’ve been saving by investing in a Registered Education Savings Plan (RESP) on their behalf, you do have options for keeping all your contributions and a substantial amount of your investment growth.
Here’s a step-by-step approach to consider if you need to look at other options for your child’s RESP.
1. Wait and see
Before you do anything, consider whether your child may change his or her mind. If you opened an RESP the year your child was born, it can stay open until the end of the year your child turns 35. A lot can happen between age 18 and 35, and your child may decide to use the money for a wide range of full-time or part-time qualifying educational programs.
2. Check for RRSP room
Fortunately, there’s an easy way to avoid paying taxes on at least some of your RESP investment growth. You can move up to $50,000 into your Registered Retirement Savings Plan (RRSP) or your spouse’s RRSP if there’s enough contribution room. This could potentially save you a significant amount in taxes and give a big boost to your retirement savings.
3. Transfer to another child
If you have more than one child, you have the option of transferring RESP savings, including grants, into your other children’s RESPs without tax consequences if they are under the age of 21. If they’re over 21 years old, you may have to pay taxes and return Canada Education Savings Grants (CESGs) and Canada Learning Bonds (CLBs).
4. Make a donation
If your alma mater or another educational institution is close to your heart, you can also donate your RESP investment growth. No taxes are due—the whole amount can benefit the college or university and its students. If you’re donating to a registered university or college, they may also be able to issue you a donation receipt for tax purposes.
5. Understand the rules for closing an account
Your RESP may include contributions, grants and investment growth, and each is treated differently when you close the account.
Contributions
You can withdraw all of your contributions tax-free.
Grants
You must repay all grants—including Canada Education Savings Grants (CESGs) and Canada Learning Bonds (CLB)—to the federal government.
Investment growth
You can withdraw investment growth if:
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- All children named in your RESP are at least 21 years old and are not in school
- You opened the RESP at least 10 years ago
- You are a Canadian resident
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However, this money is taxed as income at your regular rate plus an additional 20% (12% for Quebec residents).
If you’re considering closing an RESP, speak with your advisor. The rules are complex and it’s important to make careful decisions to minimize taxes on RESP withdrawals.
