Make the Most of Your Child’s Registered Education Savings Plan

| December 2, 2019 | 5 Comments

The cost of college is increasing every year, and the personal debt crisis is at a fever pitch. Because of this, young professionals are taking decades of their working career to pay off their education debt. A registered education savings plan is a great way to invest in the educational future of your children without going into debt trying to help them. Let’s discuss some ways to make the most of an RESP.

Make the Most of Your Child's Registered Education Savings Plan
Girl saving money in a piggy bank

Make the Most of Your Child’s Registered Education Savings Plan

Withdraw EAP First

It’s important to understand the composition of the funds within the RESP to know which funds to withdraw first. Education assistance payments are comprised of invested money, government grants, and the capital gains on the money. The other portion is post-secondary education payments, which are comprised of money contributed by benefactors after taxes. The former is a pre-tax contribution, and the latter is a post-tax contribution.

The EAP can be paid out in monthly payments to the student. Students have a very low tax liability and will pay the lowest rate in taxes, retaining the greatest amount of funds. Students also receive tuition and education tax credits, further reducing their tax burden.

Withdrawal Limits

There is a limit to how much money can be withdrawn in EAP during the first 13 weeks of enrollment. The limit is $5,000 for a full-time student and $2,500 for a part-time student. This is to ensure that the student stays in college and commits to their education. After the first 13 weeks, EAPs can be withdrawn at any time or amount. There is no limit on PSEs being withdrawn in the first year of college.

Gold piggy bank

Minimize Losses

If it looks like there is going to be funds left in the account before graduation, consider withdrawing the remaining balance to avoid penalties. Withdrawing investment earnings that are not used for education expenses incur income tax plus an additional 20% penalty.

By the end of their degree, you should have used up the government grant money in the form of EAPs. However, if there is any leftover at the time of graduation, it can be requested to be returned.

If there is a decent amount of funds left in the RESP near graduation time, you can transfer the plan to a different beneficiary so long as they share a parent. This is a good way to prevent taxes and fees from being levied and get a jump start on college funding for another child.

Make the Most of Your Child's Registered Education Savings Plan
Make the Most of Your Child’s Registered Education Savings Plan

An RESP can stay open for a total of 36 years and must be closed at the end of the 35 years. If you still have money left over after they graduate and do not have another eligible child, the funds can sometimes be rolled into a registered retirement savings plan up to $50,000 to avoid taxation. Talk with your financial provider to discuss if this is an option for you.

Bright Plan RESP offers flexible contribution options, the ability to easily add beneficiaries, and on-demand technical support. Managing and planning for your child’s registered education savings plan will set your children up for success and help to stem the tide of huge debt accumulation by young adults overall. 

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Category: Finance, Living

About the Author ()

Lyne is a Certified Infant Massage Instructor (CIMI), Certified Professional Wedding Consultant, and an Event Planner. It has always been her dream to create a website dedicated just for Moms since her children were young. Thus, after 10 years, she finally accomplished it, and the Ottawa Mommy Club was born in May 2011. She loves all things Disney and is an avid chocoholic. She was also the Queen B of the BConnected Conference, Canada's Digital Influencer and social media Conference in Ottawa and Toronto. She coordinated the Annual Infant Information Day/Early Years Expo for the City of Ottawa for 8 years. She was also the co-chair of the Navan for Kraft Hockeyville 2009-2011 committee that organized five community events within 6 months, and helped Navan reach the top 10 finalists in Canada. In April 2011, she received the City of Ottawa Mayor's City Builder Award.

Comments (5)

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  1. LisaM says:

    I have a few years to worry about this but thanks for the helpful info!

  2. Elizabeth Matthiesen says:

    A very interesting article. I don’t have any of these saving plans, my kids are all adults and out earning their own money these days. It is astonishing how expensive further education is though, it’s as if they want to take away the chance of further education from those who can’t afford it or simply don’t want the huge debt hanging over their heads.

  3. aliyadaya says:

    This is amazingly great information, especially about the EAP, the transfer to RRSP’s if there is money left, etc. Thanks!

  4. Calvin says:

    I didn’t know so much about the resp and the withdrawing penalties, good to learn.

  5. Elizabeth Matthiesen says:

    At the moment I’m wondering how to ensure that my kids don’t pay too tax on my tax free savings when I’m gone. I’d welcome ideas.

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