Let’s face it – plans can change. Although many parents want their children to go to college or university, not everyone’s future involves a post-secondary campus. These days, there are plenty of opportunities available to people who take a different path.
Your child may be more interested in entering the workforce right away or spending time traveling – a great way to learn life lessons and become more independent. Or, maybe your child just needs some time away from school before returning to the classroom.
In any case, it may be wise to avoid pressuring a child into doing something they don’t want to do. This could leave them with heavy debt, poor grades and bitter feelings about post-secondary educationOpens a new website in a new window.
But that leaves you with important questions: What can you do with the money inside a registered education savings plan (RESP)? What can you do with unused RESP money?
Alternatives for the money in an (RESP)
The good news is that those savings are not lost. In fact, there are many choices available to you if your child has decided not to go to school.
Child not going to school
So, your child has decided now is not the time for them to go to college or university. That’s okay – according to the federal government, an RESP can be left open for up to 36 years, which means your child can take time to decide if post-secondary education is right for them.
Change an RESP beneficiary
Should your child decide against attending college or university, you can opt to name another beneficiary, like a sibling, to use the available money for their education costs.
Talk to your advisor to learn are rules around with changing an RESP beneficiary.
Close the RESP
This will return your contributions to you. Is an RESP taxable? Well, you won’t have to pay any tax on your RESP contributions. You will have to pay tax on any investment growth on your contributions at your regular income tax level plus an additional 20% (12% in Quebec).
Investments can only be returned if the RESP has been open for 10 years or more and your child is 21 or over and has chosen not to return to school.
Withdrawal from an RESP for non-education use
Not going to use the RESP for tuition or another education related expense? If you ever need to withdraw some of your original contributions for non-educational purposes and there is no RESP beneficiary currently eligible to receive an educational assistance payment (EAP), any CESG you received for your original contributions must be repaid to the federal government. The RESP trustee will make the CESG repayment, equal to 20% of the noneducational withdrawal, from the plan assets. Payments received under some designated provincial plans may need to be repaid to the provincial government when there’s a contribution refund.
Transfer RESP funds to an RRSP
The maximum amount you can contribute to an RESP is $50,000. While any grant money must be returned to the government, you could move your RESP contributions to a registered retirement savings plan (RRSP). This strategy may allow you to defer paying taxes on the investment growth. To do so:
- The rules of your RRSP must allow for this kind of transfer
- The RESP must have been opened at least 10 years prior
- Your child must be age 21 or over and has decided not to go to school
- There’s contribution room in your RRSP for the transfer
- You’re a resident of Canada
Move the money to an RDSP
Another option may be to move the money in your RESP to a registered disability savings plan (RDSP), a long-term savings plan designed to help Canadians with disabilities build up their savings. This is possible if the plans share a common beneficiary and certain other conditions are met (for example, the beneficiary must be eligible to receive the Disability Tax Credit (DTC).
Can an RESP be used for an apprenticeship?
Yes, money inside an RESP can be used for trade and business schools and apprenticeships as long as the course or program lasts at least 3 weeks in a row, with at least 10 hours of instruction or work per week.
It may also be possible to use the money for education on a part-time basis, as long as the selected program lasts at least 3 consecutive weeks and requires a student to spend not less than 12 hours per month on courses in the program.