If your child is planning on attending college or university next month, chances are you need to redeem money from your Registered Education Savings Plan (RESP). Although you don’t have to provide receipts; you will have to provide Proof of Enrolment and complete redemption forms from the financial institution that holds the account.
A Proof of Enrolment document must contain the following information:
- Name of Student
- Program type
- Program start date, duration and year of the program
- The information must be noted on the educational institutions name (logo, letter head or website address)
When completing the forms, you will notice there are two types of withdrawals for educational purposes: The Post-Secondary Education Capital withdrawal (PSE) and the Educational Assistance Payment (EAP). The PSE is a withdrawal from the principal and/or contributions that you have made into the plan. The EAP is a withdrawal from the earnings (growth on the investments) as well as the government grants themselves. Because the EAP is a withdrawal from the earnings and grant monies received, the beneficiary will be subject to income tax on the proceeds.
Qualifying Programs
The educational program must be post-secondary and offered by a recognized educational institution to qualify for RESP withdrawal. If the program is in Canada it must run for at least 3 consecutive weeks, outside Canada the minimum is 13 weeks. The full-time student must spend 10 hours a week on courses or work in the program. Although there is no master list of acceptable institutions by the government Universities inside and outside Canada, Community Colleges and Vocational/Technical Colleges and Institutions generally qualify.
Withdrawal Restrictions
If the program is full-time there are no withdrawal restrictions from the PSE (contributions), however the proceeds must be used for educational purposes only. A maximum of $5000 can be withdrawn from the EAP (grant & growth) within the first 13 weeks, thereafter there is no limit. If the program is considered part-time (at least 3 weeks long, 12hrs/mth) the limit is $2500 per 13-week semester.
What if the Beneficiary doesn’t pursue post-secondary?
If the beneficiary of an RESP does not pursue higher education and no other beneficiary is named on the account, you can still withdraw the investment income under certain conditions. This is known as an Accumulated Income Payment (AIP). The subscriber can withdraw the earnings or AIP only if the plan has been in existence for 10 years, all beneficiaries are 21yrs or older and not pursuing a higher education, and the subscriber is a Canadian resident. When withdrawn, the AIP is fully taxable at the subscriber’s marginal tax rate. This can be avoided by transferring the amount into his/her RRSP or spousal RRSP, provided they have enough contribution room. If you don’t have room, the amount will be fully taxable as income and will be subject to an additional 20% penalty tax.
It normally takes 5-10 business days to receive the money once the proper paperwork has been submitted. If you know you are going to need to make a withdrawal, contact me ASAP so we can get the process started.
Regards,
Tracey and Paige
Source:
https://www.canada.ca/en/services/benefits/education/education-savings/paying-education.html
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