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How to Withdraw from an RESP

24 August 2012

It’s that time of year again. Kids are getting ready to go back to school, and older kids that are headed off to college or university are looking for ways to pay for it. Hopefully an RESP has already been set up to help, but how are you supposed to access that money? A lot of people are confused about the process of taking out money from your RESP.

It’s really quite simple to withdraw from your RESP. And once you set it up with your bank the funds should be in your chequing account within a few days. What confuses people is the amount they can pull out, and which portion of the RESP that amount is coming from.

RESPs are divided into two distinct parts. The first is the Educational Assistance Payment (EAP.) This portion is the amount that you contributed to the account. During the first 13 weeks of schooling, only $5,000 from this portion can be withdrawn from the account. Once they are, they’re considered to be taxable income, and those funds will have taxes applied to them in the spring.

The other portion of the RESP is the amount that the federal government supplied through grants, as well as any additional interest and revenue the fund has gained over time. This portion is called the Post-Secondary Education Payment (PSE.) When withdrawing from this portion of the account, there are no taxes applied (ever) and there is also no limit as to how much can be withdrawn.

Aside from how much is available to them, another thing that concerns parents and students about RESPs is they think the bank will have a ton of restrictions and requirements that must be met before the money is taken out. Receipts for things purchased with that money, special approval for taking out the funds, grade point averages – what’s needed?

Well first, forget about hauling your child’s transcripts to the bank with you. The fund is there to help all kids get a better education, whether they’re an honour roll student or have always struggled with tests and quizzes. Forget about what your child has done and focus on what your child is about to do.

That’s go to school – and the financial institution will need to see proof that they are in fact enrolled in a school and that the fund will be used to pay for that schooling. Because of this, the bank will need to see a letter of acceptance (or some other proof that the child will be attending a certain school in September,) as well as a bill or receipt for tuition fees.

That receipt or bill will be the only one that’s needed. Often parents and students think that they need to prove to the financial institution what they’re going to spend the money on. You don’t. Once you’ve proved that the person who’s name appears on the RESP is going to school, the financial institution will assume that it’s going to cost money and that someone’s going to need to pay for it.

Because they’re a federal program, lots of people think that withdrawing from an RESP is a costly and involved process. It’s not really. You just need to know what few (very few) pieces of documentation you need to bring, the different portions that you can withdraw from; and how much you can take from each of those portions.

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