Beneficiary

A beneficiary under an RESP is an individual, named by the subscriber, who will receive Educational Assistance Payments if the individual qualifies for these payments under the terms of the plan.

Sending children off to university or college is a heady time for families, and carefully contributing to an RESP every year should make it easier to meet costs. But, because an RESP, or Registered Education Savings Plan, is a registered tax-deferred plan, people simply can’t pull the money out on a moment’s notice. While you as a parent may be diligent in contributing to an RESP every year and ensuring you get the government grants you are entitled to, you shouldn’t overlook the actual mechanics of accessing the money when the happy moment comes when your child packs up the van. Here are five tips you need to be aware of when the time comes to crack open that RESP:

Subscriber

A person who enters into an RESP contract with the promotor of the RESP, the financial institution. The subscriber agrees to contribute to the plan for the benefit of an individual named in the plan as the beneficiary. Note: If the plan permits, spouses or common-law partners can be joint subscribers. The subscriber must be an individual. Therefore, a corporation, church, or charity cannot be a subscriber.

1. Plan Ahead

Don’t let any surprises happen to you like they did to Cindy’s family. Make a schedule and find out the dates when university payments are due (tuition, residence or miscellaneous). Familiarize yourself with your financial institution’s RESP withdrawal form and seek advice well before you need to withdraw money. Like Cindy’s family, you’ll have to make plans for accessing the RESP funds you’ve invested since converting investments to cash can take time and planning (see below). Remember, for the purpose of withdrawals, the money in your RESP account is a combination of three distinct types of funds: your contributions, any grants provided by the federal government as the Canada Education Savings Grant or by provincial governments where applicable, and the income earned on those contributions and any grants.

Educational Savings Grant (CESG)

The name of the federal government grant to an RESP.

Also, don’t be alarmed that, in one area of the form, it states that, for the first withdrawal, you can only take out $5,000 of the grant and income earned for the first 13 weeks: if the educational costs exceed $5,000, you may then withdraw your contributions from the RESP, using another area of the form. If you can wait the 13 weeks, it makes sense instead to first exhaust the grant and income portion of the plan especially since your child is likely at a low marginal tax rate. And don’t forget the obvious: if your child doesn’t have a bank account, make sure he or she has one. If you opened a bank account for your child when they were, say, five years old and have forgotten the account number, fix that problem before you start withdrawing funds.

Educational Assistance Payment (EAP)

A payment out of an RESP for education-related expenses that is derived from the income earned and government grants in the RESP.

3. Get the Withdrawal Form

As mentioned, the RESP is a registered plan so it may take some time to access the funds from your financial institution; make sure you budget this time into your schedule. You should also have your child’s Social Insurance Number handy. In addition to the withdrawal form, proof of enrolment from the school is required, which may entail an official document from the school. You will also need information on the RESP beneficiary and the school they are attending, such as program type, year, start date and duration of the program.

Post-Secondary Educational Capital Withdrawal (PSE)

A payment out of an RESP of contributions held within the RESP.

The form gives you options as to what part of the funds you may access (contributions, income or grant) and where you wish the money to go (your child’s account or your account). The Income and grant portion of the funds can be provided to the beneficiary only as an Educational Assistance Payment (EAP) and a tax receipt is generated in the name of your child. With proof of the beneficiary’s enrolment at a university or college, the RESP subscriber can withdraw the contribution portion of the funds without tax implications.

Assisted Contributions

Contributions made to an RESP in respect of which a CESG has been or will be paid.

The withdrawal form gives you an option of withdrawing the grant and income portion of the funds and/or the portion you have contributed. It’s a no-brainer: withdraw the grant and income portion until it is exhausted since, if your child doesn’t finish a post-secondary education, these funds may not be available, whereas your contributions will be.

Non-Educational Capital Withdrawal (NCW)

This is a withdrawal of contributions held within the RESP. This type of withdrawal triggers a grant repayment on any assisted contributions.

As mentioned, your financial institution will also need a document that confirms the enrollment of your child at the school: this may be an official document but not the email or letter that said your child was accepted at the school. You may need to apply at the school’s office of the registrar for an official document confirming enrollment or you may be able to access it on the school’s website. In any case, find out well beforehand how to access this enrollment confirmation document and what the turnaround time is if you are dealing with a school outside your local area. Also, there may be a fee involved.

Election of Payments

Where you want the funds to go. When an EAP is paid, the grant and income portion must go to the beneficiary for tax purposes. The contribution portion can as well but it could go to the parent if it is easier for them to pay school bills.

There are no restrictions on how the funds can be spent. Naturally, the funds should be earmarked to pay for education expenses (tuition, books, residence fees or rent, living expenses and gear like a computer or lab equipment). The government doesn’t publish a list of eligible (or ineligible) expenses, so it’s up to you to determine how RESP money will be used to pay for education related expenses.