When you have started to contribute to your child’s registered education savings plan (RESP), you may not think about RESP withdrawal. No one actually does. But, reality sometimes could be different. Your child could set out for university but might not want to finish or drop out for some reason.
Whatever the reason is, you may want to know about RESP withdrawal penalties and how to avoid it. If your children don’t want to participate in post-secondary education, you must make your plan more flexible.
We observe many people get tensed over their children for not completing post secondary education. Many questions arise in that situation. Are they going to be taxed? Are they going to lose their money? In this article, we are trying to show you some other options that can give you more flexibility and free you from tax headaches.
Keep Your RESP Account Open
If your child is not interested in university education, don’t get all stressed up. A family or individual RESP can remain open for 36 years. It’s a long time. Many things can change at this time. Your child may want to resume study once again. RESP for beneficiaries appropriate for the disability tax credit can even stay longer than 36 years. So, before doing anything, try to know everything about your plan.
Transfer The RESP Money To Another Beneficiary
If you have one more child, you will be lucky. You don’t have to contribute to that child’s RESP. You can transfer the money to another child’s RESP from his/her sibling’s RESP. It is doable as long as your transfer money doesn’t exceed the Canada Learning Bond, Canada Education Savings Grant, or contribution maximums. If it exceeds, you have to repay the extra to the government. This is how tax service in Toronto gets essential so that you don’t fall in the trap.
The transfer also depends on your plan. If you have a family RESP, the transfer will be a lot easier. As for individual RESP, you need to do calculations and paperwork. It’s a bit time-consuming. You could take a financial advisor’s help to make the best move in this case.
Transfer The Money To Your Own RESP
If you have only one child, you need to go for another option. With some conditions, you may able to transfer up to $50,000 from your child’s RESP to your RESP tax-free. The conditions are-
- The RESP need to be remain open for at least 10 years
- Your child has to be at least 21 years old and not pursuing higher education currently
- You have an adequate contribution room in the RESP.
If you have plans for charity, this could be an excellent opportunity to do that. You may help another young promising child to continue education.
What Happen To Extra RESP Money After The Completion Of Children Education?
This is an interesting question to ask about. Many people are so engaged in their children’s education that they forget about it. A few options are available for you for remaining RESP money. As the RESP account can be open for 36 years, you should consider waiting for a while. Your child may need that money for his/her post-doctorate education.
You can transfer the remaining RESP money to the individual subscriber/parents’ RRSP plan. But to do so, you will need enough contribution room available.
The Bottom Line
RESP withdrawal rules are a bit complicated. There are not a lot of options for you if your children are not up for higher education. So, before opening an RESP, you should think about the plan. Discuss with your family members about the plan. It would help if you also considered taking some advice from a financial advisor.
Our service range varies from tax service in Toronto to accounting service. You should also know more about the RESP withdrawal limit, RESP withdrawal types, and RESP withdrawal options before opening it. If you need any assistance regarding RESP, contact us.