As students prepare to begin post-secondary studies, many families face the important step of making their first withdrawals from registered education savings plans (RESPs). While accumulating funds in an RESP often receives significant attention, navigating the withdrawal process can present unexpected challenges.
Withdrawals from RESPs can begin once a student is officially enrolled in a qualifying program. To initiate a withdrawal, proof of registration, the student’s social insurance number, and banking details are typically required. Some RESP providers may ask for this information with each request. Given that tuition and residence fees tend to be billed starting in August, families should consider scheduling withdrawals early that month, allowing approximately five days for funds to be deposited.
Withdrawals can be made as frequently as needed, offering flexibility throughout the academic year. Many opt to split payments between terms—commonly two withdrawals in August and December—to align with billing cycles. However, unforeseen expenses may necessitate additional withdrawals, particularly during the initial semester. Maintaining a cash balance within the RESP can facilitate smoother transactions and faster access to funds, minimizing delays associated with liquidating investments.
Regarding disbursement, the subscriber of the RESP can choose to have funds deposited either into their own bank account or directly into an account held by the student. Opening a dedicated student bank account solely for RESP funds can provide practical benefits, granting the student responsibility over their educational expenses and cultivating money management skills. This also helps students understand the financial demands of their education. Nonetheless, parents should weigh the risk of funds being used on non-essential items such as dining or entertainment. In such cases, a joint account might offer a compromise, allowing oversight while still providing students some autonomy. Keeping a small reserve in this account can also cover unexpected costs without requiring frequent parental intervention.
Withdrawals from RESPs come in two types: Post-Secondary Education Payments (PSEs) and Education Assistance Payments (EAPs). PSEs consist of the subscriber’s original contributions and are withdrawn tax-free. EAPs include government grants and earnings on investments, which constitute taxable income for the student. Initially, the amount of EAPs withdrawn may be limited during the first term, but after that, families may choose the mix of PSEs and EAPs to withdraw.
Because EAPs are taxable, strategically timing these payments can have tax implications. Students with little or no other income during a given year—such as during a summer without employment—may benefit from taking more EAPs when their taxable income is low. Conversely, in years when students earn a higher salary, such as from internships or co-op placements, it may be advantageous to prioritize PSE withdrawals to reduce taxable income. While this strategy typically has a modest impact on overall taxes, careful planning can help optimize RESP withdrawals.
Families preparing for withdrawals from RESPs are encouraged to familiarize themselves with these procedural and financial considerations to ease the transition into funding post-secondary education.