A Registered Education Savings Plan is a good investment for your child’s post-secondary education. However, your child may decide to go for a career or post-secondary route that may not require them to use their RESP. You still have not lost your RESP since there are options on how you can still use the savings. Here are five tips to help you make use of your RESP contributions, even if your child does not pursue post-secondary education.
1. Give Your Child Time
First, adopt a wait-and-see approach. See if your child may have a change of mind. Your RESP is valid and open until your child is 35 years. Peer pressure and lack of solid goals can influence your child on a path they will soon abandon.
Between age 18 and 35, your child can change their mind, and use the money either on part-time or full-time educational plans. Don’t be in a hurry to commit the money elsewhere.
2. Move the Money to Your RRSP
You can move some of your investment in RESP to your Registered Retirement Savings Plan (RRSP) or to that of your spouse. The law allows movement of up to $50,000. This is an easy way to avoid taxes on your heritage RESP growth. Equally, it boosts your savings on retirement.
3. Transfer the Plan to another Child
If you have another child, transferring the RESP savings to their plan is an option. This shall also include the transfer of grants. If the child is under twenty-one years, there shall be no taxes required. When they are over 21 years old, you return the CLBs and the CESGs, and you may pay taxes.
4. Donate Your RESP
If philanthropy is your calling, you can donate your heritage RESP investment growth to an educational institution that is close to your heart or your alma mater. No taxes are required and the students, college or university can benefit from the whole amount. For tax purposes, the receiving institution should issue you with a receipt to confirm the donation and get some tax relief.
5. Play by the Rules when Closing Your Account
Understanding the rules for closing your account is important. Your RESP could include grants, contributions and investment growth. When you close the account, each is considered differently. The rule is you can access and withdraw all your heritage RESP contributions with no taxes.
All grants are payable to the federal government. They include Canada Education Savings Grants and Canada Learning Bonds. You withdraw your investment growth if you are a registered resident of Canada, children listed in the RESP are not in school and are at least 21 years, and your RESP was opened at least 10 years ago.
This money is viewed as income and taxed at the regular rate, with an extra 20% withholding tax (Quebec residents are taxed at 12%). If you choose to close your RESP account, talk to your advisor. To minimize taxes on RESP withdrawals, make careful decisions since the applicable rules are complex.
You don’t have to worry anymore what to do with your RESP savings. May these tips inform your choices and preferences.
