A litte RESP education

29-Aug-2011 | kate | RESP Uncategorized

Its back to school season and it is the time of year that people start calling about withdrawing from their RESP for the university aged children heading off to school. There is a lot of confusion regarding RESP withdraws but here is a quick recap on the rules and procedures.

 

A little known fact about RESP is that they have only been around since 1998, so the amount of money for children entering school five years ago was minimal, but now we have RESP with 20-30,000 that can result in tax problems.

 

Step One: Withdraw Early

 

Usually RESP withdraws only take a few days, but if we have any problem with proof of enrollment there could be delays.

 

Step Two: Start Before School

 

As soon as your child is enrolled in post-secondary studies, a RESP withdrawal can be initiated. You do not need to wait until school is started. If necessary, as the school to sign a Verification of Enrollment form which most education institutions will fill out for you.

 

Step Three: No Questions asked

 

As long as your child is enrolled and you want to withdraw money from your RESP, all you have to do is ask. You don’t need to bring receipts or any other justification. You can of course ask for more than you need.

 

Step Four: Get Specific

 

There are two parts to an RESP: contributions and non-contributions, which is made up of grants and gains in the account. If your child is attending school. You can ask for a Post-Secondary Education Payment (PSE)- a withdrawal from the contribution amount- or an Educational Assistance Payment- a withdrawal from the non-contribution amount. This is an important distinction because PSE payments are not taxable income and there is no limit on the withdrawals. EAP are taxable for the student and there is a $5000 limit on EAP withdrawals in the first 13 weeks of school.

 

Step Five: Grants

 

Even if you are withdrawing from your RESP, if you child is still grant eligible and you are making contributions you would be able to receive granting money.

 

Step Six: Watch your Math

 

If you have a family plan, make sure that you only withdraw $7200 worth of grant money per child. Every EAP contains some grant money and it is possible to withdraw more grants then the $7200 lifetime limit. If that does happen, excess money returns to the government.

 

Step Seven: Don’t leave non-contributions behind

 

Unknown to many, there is heavy penalties if you don’t withdraw non-contribution money as an EAP. If your child finishes school early or doesn’t need all the money, withdraw it as an EAP anyways, which will help you avoid penalties. You can also withdraw EAP up to 6 months from the time the student finished going to school.

 

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