A Parent’s Guide to RESP Withdrawals

Understanding the Rules, Limits and Strategies for Education Funding (RESP)

For many parents, opening an RESP is one of the first major financial commitments they make for their child. Years of contributions, government grants, and investment growth eventually lead to an exciting milestone, post-secondary education. However, when it comes time to actually use the RESP, many families discover that withdrawing money is more complicated than they expected. In this article, I am going to explain RESP withdrawal terms and strategies to make the most of this opportunity.

Types of Withdrawals

First, we should review the types of RESP withdrawals. There are three in total: Educational Assistance Payments (EAPs), Post-Secondary Education (PSE) Withdrawals, and Accumulated Income Payments (AIPs), which are used if your child does not go to school. Since this article is about withdrawals for education, we won't be discussing AIPs in detail. Just note that AIPs are subject to regular income tax plus an additional penalty tax, which is why planning ahead to fully utilize the RESP for education is often important.

EAP payments are the bread and butter of the RESP. These withdrawals consist of investment growth, the Canada Education Savings Grant (CESG), and the Canada Learning Bond (CLB). I like to explain it as three buckets that make up the EAP payment. The financial institution that is administering the RESP must follow a formula for how much from each bucket they have to pull. This means that you cannot just take grant money or just take the investment growth; they all come predetermined.

The most important thing to remember with EAPs is that the amount is taxable to the child, not to the parent. Since the child is going to school and has a presumed lower taxable income, we typically see low tax consequences to these withdrawals. However, with summer work and larger EAPs, some planning should take place.

You may have noticed that EAPs don't have any mention about the funds you put into the RESP, or the principal. This is where the PSE withdrawals take from. The PSE consists of only the contributions that are made to the account. These withdrawals are not taxable since they were contributed with after-tax dollars and can be used to supplement the EAP payments.

Withdrawal Rules

So, you might be thinking, great, let's start some withdrawals, but that is where some families can end up hitting roadblocks. While it seems easy enough, there are some rules that the government imposes on making EAP and PSE withdrawals.

First, the child needs to be going to an accredited post-secondary program approved by the government. Most people think this is limited to Canadian universities and community colleges, but the reality is there are a lot of different programs that are accepted both nationally and internationally. The Canadian government has a website with a list of programs that are accepted and can be confirmed to qualify for educational withdrawals from RESPs.

List of designated educational institutions - Canada.ca

Once we know the program the child is attending qualifies for the withdrawals, we need something confirming their enrollment. This is what is called a Proof of Enrollment (PoE) document. Everyone's first reaction is the acceptance letter, but unfortunately, this does not work. There are a few combinations of documents that can be used, such as a timetable, tuition receipt, and T2202 tax form, but the easiest is getting a letter from the school's registrar. This is usually the same place to pay tuition in person, and they can print off a letter that has all the required information. Some schools also offer this through their website that you log into for school-related matters. There is typically a nominal fee to get these documents that varies by school.

The last important rule that we should discuss is the withdrawal limits. For EAPs, there is a maximum of $8,000 for the first 13 consecutive weeks of study for full-time students. Past 13 weeks, that maximum goes to $29,459 annually for the 2026 year. One thing that does commonly come up with trades is if the child is not enrolled for a 12-month period, the $8,000 applies again. With PSEs, there is not a maximum each year.

Withdrawal Strategy

With the rules listed, now let's discuss how to properly get this money out. In many situations, advisors will prioritize EAP withdrawals early in the student's education. Why? This is the money that the government gives and the interest accumulated in the account. As well, with the above information on maximums, this is commonly where people can end up with leftover funds in the RESP and face the strict penalties of a non-educational withdrawal.

With the EAPs, it is common to take the full $8,000 in September to make the initial payments that are required. This then allows, in week 14, typically mid-December, to take up to the annual total of $29,000 if needed. Starting in January of the following year, these withdrawals are spread out over the two semesters for the remaining time in school. The amount that is withdrawn every year will be dependent on how much is in the RESP, if there are additional children that are still going to be going to school, or how long the schooling is expected to last.

With the EAPs requiring the most planning to get out of the RESP, the initial contributions and PSEs need less thought. Since there is no annual maximum and no taxes to account for, if there is any remaining PSE at the end of the child's studies, we simply do a full PSE withdrawal. Because PSE withdrawals are tied to an eligible beneficiary attending post-secondary education, it is generally a good idea to ensure any remaining PSE funds are reviewed and withdrawn as part of the overall RESP strategy before the student's education is complete.

Conclusion

With all that said, RESP withdrawals can be more complex than many families expect. While we've covered some of the key rules and considerations, every situation is unique. Questions can arise if a child delays post-secondary education, chooses not to attend school, or if there are remaining funds in the account after graduation.

That's why it's important to understand how the rules apply to your specific circumstances before making withdrawal decisions. Working with a financial planner can help ensure you maximize the benefits of your RESP while avoiding costly mistakes or missed opportunities.

If you'd like help creating a RESP withdrawal strategy or understanding how education planning fits into your broader financial plan, Prairie Wealth would be happy to help you navigate the options and make informed decisions for your family's future.

Chris

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