After spending many years contributing to a Registered Education Savings Plan (RESP), how do you go about accessing those funds now that your child is headed for university or college? Tannis Dawson, High Net Worth Planner, TD Wealth, joins Greg Bonnell to discuss the steps you’ll need to take.
Print Transcript
* Today on Ask MoneyTalk, we answer a question around RESPs. Tannis Dawson, High Net Worth Planner at TD Wealth, joins us now to weigh in. And here's the question for you: We've contributed to an RESP for several years. With our child off to university in September, what do we need to know about accessing the funds?
* Well, now that your child's finished high school and is enrolled into a post-secondary educational institution, we can now take money out of the RESP. But we want to make sure that-- really, we should have looked at a year ago to the investments that are inside there and make sure that we've changed the investment portfolio of it to have liquidation.
- What we need to do now is we want to make sure that the school is an eligible school on the list. We want to make sure that the program has the minimum length. We want to then have a copy of the letter for the proof of enrollment and work with the investment advisor to fill out the form for withdrawal.
* I have two sons in university right now. I know that it's not inexpensive to put them through school. So I guess a big question now would be, how much can you withdraw from that plan come September?
* So if they're a full-time student, you're allowed to draw $8,000 now-- it used to be $5,000-- for the first 13 weeks. After 13 weeks, there's really unlimited. But most programs and plans will allow a maximum of $25,000 before they'll require receipts. If you're a part-time student, that amount is only $4,000.
* OK, so interesting things to know there. What about when you're trying to determine-- I mean, obviously, I hope-- and they have gone beyond first year. This is going to be several years of putting them through university. What do you need to review when you determine the amount of money you're going to take out?
* Yeah, so you're going to want to look to see what earned income that you estimate that they would have for the year, then compare it to their basic exemption, their tuition credits, and any other benefits they might have on there, compared to what they need to fund their tuition and their living expenses will help you to determine what is that EAP. Which is the Educational Assistance Payments. And that is the growth and the grants, a mixture of it, to come out. And you can take capital, too, but usually you're looking at that income, at least in the first bit.
* OK, let's talk about the tax implications. Sometimes people will ask of the RESP, are the withdrawals tax-free?
* So the income portion, the income and the grant, the EAP, will be taxable, but it's taxable to the child. So it's not taxable to the person-- the parent or the grandparent-- that put the money in. And capital payments, any money that comes out of the capital to the child or the parent, are always coming out tax-free. So they really just want to look at planning and making sure that you've looked over the four years or however you expect to be in and looking to see what to maximize your benefit.
* So obviously, from our conversation here, there are things to consider. Sometimes people feel that it's a lot to put on their plate, perhaps look for some help.
* Yeah, so you want to go and work with your investment advisor and your accountant to determine to maximize the benefit and what is best for that child's situation and looking to see to get the most that you can out of your RESP.
* OK, very useful information there. Thanks for that, Tannis.
* Thank you.
* That's Tannis Dawson, High Net Worth Planner at TD Wealth. And if you have a question, send it to MoneyTalk@TD.com.
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* Well, now that your child's finished high school and is enrolled into a post-secondary educational institution, we can now take money out of the RESP. But we want to make sure that-- really, we should have looked at a year ago to the investments that are inside there and make sure that we've changed the investment portfolio of it to have liquidation.
- What we need to do now is we want to make sure that the school is an eligible school on the list. We want to make sure that the program has the minimum length. We want to then have a copy of the letter for the proof of enrollment and work with the investment advisor to fill out the form for withdrawal.
* I have two sons in university right now. I know that it's not inexpensive to put them through school. So I guess a big question now would be, how much can you withdraw from that plan come September?
* So if they're a full-time student, you're allowed to draw $8,000 now-- it used to be $5,000-- for the first 13 weeks. After 13 weeks, there's really unlimited. But most programs and plans will allow a maximum of $25,000 before they'll require receipts. If you're a part-time student, that amount is only $4,000.
* OK, so interesting things to know there. What about when you're trying to determine-- I mean, obviously, I hope-- and they have gone beyond first year. This is going to be several years of putting them through university. What do you need to review when you determine the amount of money you're going to take out?
* Yeah, so you're going to want to look to see what earned income that you estimate that they would have for the year, then compare it to their basic exemption, their tuition credits, and any other benefits they might have on there, compared to what they need to fund their tuition and their living expenses will help you to determine what is that EAP. Which is the Educational Assistance Payments. And that is the growth and the grants, a mixture of it, to come out. And you can take capital, too, but usually you're looking at that income, at least in the first bit.
* OK, let's talk about the tax implications. Sometimes people will ask of the RESP, are the withdrawals tax-free?
* So the income portion, the income and the grant, the EAP, will be taxable, but it's taxable to the child. So it's not taxable to the person-- the parent or the grandparent-- that put the money in. And capital payments, any money that comes out of the capital to the child or the parent, are always coming out tax-free. So they really just want to look at planning and making sure that you've looked over the four years or however you expect to be in and looking to see what to maximize your benefit.
* So obviously, from our conversation here, there are things to consider. Sometimes people feel that it's a lot to put on their plate, perhaps look for some help.
* Yeah, so you want to go and work with your investment advisor and your accountant to determine to maximize the benefit and what is best for that child's situation and looking to see to get the most that you can out of your RESP.
* OK, very useful information there. Thanks for that, Tannis.
* Thank you.
* That's Tannis Dawson, High Net Worth Planner at TD Wealth. And if you have a question, send it to MoneyTalk@TD.com.
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