Why you need a plan when withdrawing from an RESP to pay for school
Often, a Registered Education Savings Plan (RESP), is created by parents long before a child has any notion of what a post-secondary education even is. When the time comes to withdraw from the account, advisors recommend proper planning to ensure there is sufficient time to convert those investments into cash. In addition, the type of withdrawal is important. There are two types of withdraws: the refund of contributions, and the educational assistance payments (EAP) portions. Generally, it’s wise to withdraw the investment gains and EAP monies first. The reason is that if a child stops going to a post-secondary institution and there is money still in the EAP portion, then the federal grant money must be repaid to the government. Keep in mind that the refund of contributions are not taxed, but the EAP amount is taxed as the student’s income.
“You want to use up your educational assistance payments first because if there’s any left in the pool and your child is no longer going to school and won’t be going to school those are going to need to be repaid back to the government,”