Useful Tips on Making an RESP Withdrawal

For years you have been saving up for your child’s education and when it’s finally time to use the money, how do you proceed? Before you proceed with the withdrawal, make sure you contact your financial institution for details. The rules might be a bit more restrictive in the case of scholarship or group RESPs. Here are some tips you could make use of when making an RESP withdrawal:

• Proof – When it comes to withdrawing funds from your RESP account, the proof of enrollment is more than enough to justify your payment request. However, make sure you get the specific criteria required by your financial institution. You can get a Verification of Enrolment form filled out by the educational institution. 

• Limit your withdrawal per beneficiary – In the case of family RESPs, make sure you limit the withdrawal per beneficiary to $7,200. This is the lifetime grant limit set for each beneficiary. Of course, you can set the amount yourself and it would be possible to withdraw more than this amount for one beneficiary.
  
  In this case, you will need to return the grants to the government. You can get a detailed account of the grant money given to each beneficiary from your financial institution. This will help you prevent withdrawal of inappropriate amounts.

• Go for more – Making withdrawals from your RESP account is not as simple as making withdrawals from your checking account. That’s why you might want to consider withdrawing more at once rather than small amounts. It’s not like you have to give all the money to your child as soon as making your withdrawal. You can keep it safe and pay them out on a regular basis.

• Withdraw accumulated income – It is highly recommended that you withdraw the accumulated income in your RESP account as Educational Assistance Payment or EAP. There are some cases where the accumulated amount is withdrawn as Accumulated Income Payment or AIP because the student drops out of school.
  
  In such instances, the grants have to be returned to the government. In addition, the withdrawn amount is considered taxable income and you will need to pay 20% as penalty tax as well. 

What You need to Know about RESP and its Benefits

The tax-deferred savings plan known as Registered Education Savings Plan is one of the best ways for a Canadian parent to save up for their child’s future. It is so for a number of reasons. The following are just some of those benefits:

• Better education guarantee – RESPs allow you to set aside a certain sum of money on a regular basis, so your child can have access to better education when necessary. The funds withdrawn can be used for education-related expenses including tuition, living costs, books, and travel.

• Contributions from the government – The Canada Education Grant program or CESG enables you to receive contributions from the federal government on your child’s RESP. This contribution can be up to $500 a year, as the government will contribute an amount equal to 20% of the first $2500 you contribute in a year.

• Flexible contribution plans – A major benefit of the Registered Education Savings Plan is that it offers a high level of flexibility for contributors. You get to decide the amount that should be withdrawn as well as the maturity of the plan. Also, if the funds are not paid out to the beneficiary for valid reasons, the accumulated amount can be transferred to your or your spouse’s RRSP account, given that there is available contribution room.

• Choice of plan – When starting an RESP, you have the option of going for an individual plan and a family plan. Both have varying benefits depending on the needs of different individuals. In an individual plan, there can be only one benefit. If you need to have multiple beneficiaries, you could go for the family plan.

• Savings on tax – When making contributions to an RESP account, your contributions are not tax deductible. However, the beneficiary may need to pay only little or no amount of tax on the funds owing to low income as a student. The taxes on withdrawal are charged to the beneficiary and not the contributor.

Is your child interested in becoming a Doctor or Lawyer?

Parents always want their children to succeed, and for this reason, try to encourage their children to follow specific career paths that they believe will offer prestige and a good income. Doctor, lawyers and engineers have long been prescribed for this reason (you may even be a parent that is encouraging your child to become a doctor, lawyer or engineer!).

But, have you stopped to think about how much it would cost to be a doctor or engineer or lawyer? While it may be great to have your child study in either one of these fields, are these fields that are affordable to study?

Let’s have a quick run at the numbers. (For the sake of simplicity, we’ve looked at University of Toronto’s numbers.)

Doctor

$158, 116

Lawyer

$ 91, 371

Did you know the graduating 2014 class has the highest debt of any graduating class from University of Toronto’s Faculty of Law?

Engineer (Materials and Science Engineering)

$ 49, 452

These are just basic numbers for domestic students, if you specialize, do another program, live on residence or anything else, these numbers can just be the tip of the iceberg! Education isn’t cheap!

How much did tuition cost you when you were in school?