It’s good news when your child gets accepted to university or college but it may be bad news if you wait until the last minute to withdraw funds from your RESP. Chris Gandhu, High Net Worth Planner, TD Wealth talks about the forms, deadlines and considerations you need to know about to ensure school funding goes smoothly.
Originally recorded June, 2019
- It's an exciting time for many people heading back to school, university, college. And for many, it's the first time they're going to have to tap into those RESPs, or Registered Education Savings Plans to help pay for university of college. Here to tell us the mechanics of actually how to do that, we're joined by Chris Gandhu. He's a high net worth planner with TD Wealth. Nice to see you.
- Good to see you.
- So the first thing people need to keep in mind is time. This is not an instant process.
- No, there's so much to do, Kim. You need to be aware of the bank forms. You have to get official proof of registration from the institution's registrar. The child needs a SIN number. They need a bank account. There is a lot to do. This is a registered account. So don't leave it till the last minute.
- OK. Let's run through these in a little more detail in terms of the things you need. You mentioned you need an official letter from the school of acceptance, not an email.
- Exactly. Email or online printout won't suffice. You need an official letter.
- Second thing is you need the RESP Withdrawal Form.
- Correct. Which can be complicated and daunting for a first time user because there is a lot of options to pick from. So there's different pools of money in the RESP, for instance. And you need to have some forethought as to what you want to do.
- And one thing that's really important as well is there's only really one person who can activate all this. And that is the person who's been putting money into the RESP.
- Exactly. The subscriber. So if you set up that account, you are the one in charge of doing this work, not your child.
- OK. Let's get into, you talked about there's some different kinds of funds inside the RESP. What are they?
- All right. So, the contributions you make, the grant that you receive from the federal or provincial government, and the income on the grant are the three different parts. And you'll have to pick and choose as to how much money you want to withdraw from each part and in what order.
- OK. So what's the answer to that? What is-- which parts and what order? What should people choose?
- Yeah. The easiest one is I think grant should go first. Because only the child attending the university or institution can use the grant. So it's better for them to use it up first. Because you can always take the contributions when you come back yourself as a subscriber.
- Right. But if the inverse happens, the child decides not to go to school, that grant is gone. You cannot touch that one, right?
- That is exactly right.
- But there is a maximum in terms of how much of it can be taken out from the grant standpoint. $5,000?
- Yes. For the first 13 weeks, the limit is $5,000.
- Question is, of course, with people, you know, the funds may not be available right away if they're not in cash. You actually have to make sure you have the cash in the RESP account to do this.
- Yes. Another thing you need to worry about. So if, for instance, if your money was invested in long term GICs, you'll need to make sure you've cashed them out before.
- Once the cash is out and in the student's hands, what can they use it for?
- You know, there is some flexibility around that. Direct and indirect use should be for education purposes. So tuition, textbooks, perhaps laptops and cell phones.
- All right. Chris, thanks so much.
- Thank you.