Wiegers Financial & Benefits is a prominent leader among Saskatchewan’s private financial planning and employee benefits consulting firms. Our Financial Planning Division is dedicated to offering business owners, individuals, and families top-notch investment and insurance planning services, ensuring they successfully navigate the path toward their long-term financial aspirations. Additionally, we have a specialized Group Benefits Division to cater to our client’s diverse needs. In our latest article, we share RESP Withdrawal strategies when it comes to paying for your children’s education and the tax implications that follow. 

After spending nearly two decades saving for a child’s post-secondary education, it’s time to start paying for it. When money is paid out of a registered education savings plan (RESP), the various types of payments and tax treatment can cause confusion. There’s also the question of what to do with RESP savings that aren’t used to pay for post-secondary education. The good news with withdrawal options is that they provide opportunities to implement strategies to reduce the associated tax cost.pile of books with a alarm clock in front and a graduation cap on top of the books

RESP withdrawals for a post-secondary education

Once the RESP beneficiary has enrolled in a full-time or part-time qualifying post-secondary education program,1 money can be withdrawn from the RESP to help cover the costs. There are two types of withdrawals:

  • Post-secondary education (PSE) withdrawal– a return of the contributions made to the RESP that aren’t taxable
  • Educational assistance payments (EAP)– includes various government grants (federal and provincial where applicable) and the Canada Learning Bond (CLB), as well as investment earnings on the grants, CLB, and RESP contributions. These amounts are taxable to the student beneficiary of the RESP.

For full-time or part-time studies, EAPs are limited to a maximum of $5,000 or $2,500 respectively during the first 13 consecutive weeks of enrollment. The limit won’t apply after that time unless the student leaves his or her studies and does not re-enroll in a qualifying educational program for 12 months. 


Strategies for tax efficient RESP withdrawals

Students can have a few income sources, ranging from scholarships and grants to employment income and EAPs from an RESP. To help determine annual EAP payments from an RESP, consider the following:

  • Composition of the RESP – Find out from the RESP provider how the RESP is allocated between contributions, grants, CLB, and investment earnings.
  • Duration of study – Having an idea of how long the student will be pursuing a post-secondary education can provide a time horizon for RESP drawdown.
  • Cost of education – This provides an annual withdrawal estimate for the RESP. EAPs can be used for a variety of expenses and can be paid up to six months after enrolment ceases.
  • Other sources of income – This can include taxable and non-taxable sources.

While it’s possible to have enough income to have tax payable, there are options to reduce or eliminate that tax bill. These options come in the form of refundable and non-refundable tax credits and deductions against taxable income. Consider utilizing these tax savings options in the following order of priority:

  1. Refundable tax credits – If you’re eligible, claim these credits. They’ll provide you a refund regardless of whether you have tax payable for the year or not.
  2. Tax deductions that can’t be carried forward – Given their use it or lose it nature, these deductions should be fully utilized each year, where possible. Since deductions directly reduce income, they can be very valuable if they reduce income enough to be eligible for refundable tax credits.
  3. Non-refundable tax credits that can’t be carried forward – Like the deductions above, these credits should be fully utilized each year, where possible. Since credits reduce tax payable and not income, they’ll not help with eligibility for refundable tax credits.
  4. Non-refundable tax credits that can be carried forward – Since tax credits save tax at the lowest tax rates, their savings don’t change if your marginal tax rate is higher in the future. As such, if there’s still tax payable after using the first three options, why not further reduce your tax bill and get that valuable cash in hand to put towards ongoing education expenses?
  5. Tax deductions that can be carried forward – Tax deductions reduce taxable income and, therefore, the tax savings is based on your marginal tax rate. So, if your future marginal tax rate will be higher (i.e., during your working years), saving the deductions for those years can yield higher tax savings than in the present.
Common federal tax credits and deductions for students

For more information, see the Government of Canada web page, Common deductions and credits for students.

Careful planning can help a student maximize RESP withdrawals while paying the least amount of tax possible, allowing for the maximum amount of income to go towards the cost of pursuing an education. Ideally, the RESP would be fully depleted when studies are complete. But what if it isn’t, or what if the beneficiary doesn’t pursue an education at all?


RESP withdrawal for non-educational purposes

When an RESP beneficiary doesn’t pursue a post-secondary education or has completed one with a balance remaining in the RESP, eventually the RESP will have to be closed. Before reaching that point, consider:

  • Leaving the RESP open – An RESP can remain in place for up to 36 years (40 for a specified plan) before it must be closed. If there’s a chance the beneficiary will pursue a post-secondary education later, taking advantage of this long time horizon would allow the assets to continue growing tax deferred.
  • Replacing the beneficiary or transferring to another RESP4– Replacing the beneficiary of an individual plan or transferring to another RESP for a different beneficiary can potentially conserve grants and CLB for the new beneficiary to put towards their post-secondary education. The replacement beneficiary or beneficiary of the receiving RESP must be a sibling of the current RESP beneficiary. Failure to meet this and other conditions related to a beneficiary replacement or RESP transfer can result in a repayment of government incentives, RESP overcontributions, and tax penalties. For family plans, one beneficiary’s earnings, grant, and CLB can be used to fund the other beneficiary’s post-secondary education, subject to each beneficiary’s maximum lifetime amounts. This can also be accomplished by transferring to another RESP family plan.

While the subscriber’s contributions can be withdrawn tax free at any time, subject to repayment of Canada Education Savings Grants (CESGs),5 the investment earnings that have accumulated on those contributions and government incentives must wait to be withdrawn. Specifically, such amounts can be withdrawn when the RESP has been open for at least 10 years and the beneficiaries are 21 or older and not pursuing a post-secondary education. These payments are known as accumulated income payments (AIP). AIPs are taxable to the subscriber at their marginal tax rate plus an additional 20% penalty tax (for residents of Quebec, 12 per cent federal plus eight per cent provincial). When an AIP is requested, the RESP must be closed by the end of February of the following calendar year. Fortunately, there are two options for eliminating tax on AIPs:

  • Transfer to a registered retirement savings plan (RRSP) – A subscriber can transfer up to a lifetime maximum of $50,000 ($100,000 for joint subscribers) to their RRSP or spousal RRSP. Each individual must receive separate payments (no joint payments allowed) and each must have enough available RRSP contribution room. While the AIP is reported as taxable income, it’s fully offset when the RRSP deduction is taken in the same tax year.
  • Transfer to a registered disability savings plan (RDSP) – If the RESP beneficiary has an RDSP, is a resident of Canada, and is under 60 years of age, an AIP can be rolled over to an RDSP. The maximum amount for rollover is $200,000 (lifetime RDSP limit) less the contributions already made to an RDSP. In the case of a family RESP, the AIP can include earnings for other beneficiaries of the RESP. It’s important to note that AIP rollovers to an RDSP will be taxable to the beneficiary when withdrawn in the future and won’t be eligible for the Canada Disability Savings Grant (CDSG) when transferred.

Finally, if the beneficiary is no longer eligible for an EAP and the subscriber doesn’t qualify for an AIP, a payment to a designated educational institution can be made. The institution must be in Canada. These payments are tax free but are considered a gift by the RESP trust and not the subscriber; therefore, no donation receipt is issued.



Withdrawals from an RESP can either be taxable or non-taxable. When contributions are withdrawn, the subscriber can receive them tax free. Taxable payments include RESP investment earnings and government incentives when they’re paid in an EAP. These payments are taxable to the student beneficiary. To reduce or eliminate tax, students can claim any tax credits or deductions that they’re eligible for. When an AIP is made, it only includes investment earnings and is taxable to the subscriber. For subscribers, tax savings can be realized when an AIP goes to their RRSP or a beneficiary’s RDSP, or when a gift is made to a designated educational institution in Canada. With a little foresight and knowledge about the allocation of funds in an RESP, money can be withdrawn tax efficiently when the time comes. Interested in learning more? Contact one of our trusted advisors today.


The opinions expressed are those of the author and may not necessarily reflect those of Manulife Securities Investment Services Inc.