What happens to your kid’s Registered Education Savings Plan (RESP) if they decide against pursuing post secondary education? It’s a good question to ask!
As I have previously discussed, the RESP is a great way to save money for your child’s higher education. When you consider that the government through the Canada Education Savings Grant (CESG) also contribute up to a lifetime amount of $7,200 to your RESP, it is a WIN-WIN situation for you and your kid.
Apart from the CESG, families may also qualify for additional government grants to enable them save for their kid’s future education. These include the additional CESG, Canada Learning Bond and other provincial educational grants.
Funds accumulated in an RESP can be used to pay for post-secondary education undertaken by your child after they graduate from high school – including apprenticeships and full or part-time programs offered by colleges, universities, trade schools, etc.
So, if your child decides they are not interested in further education, what are your options?
1. Keep the RESP open
There’s no rush! An RESP can stay open for 35 years after the year the account was initially opened. Your child may change their mind between 18 and 35, so you may want to wait and see.
2. Transfer the RESP to another Beneficiary
In a family RESP plan, you can just use the funds for another child named under the plan. If the RESP was setup as an individual plan, you can transfer the plan to another beneficiary as long as they are under 21 years of age and a brother or sister of the original beneficiary. If both conditions are not met, all or some of the grant money may have to be repaid to the government. Check with your RESP provider for more details.
3. Transfer the funds to your RRSP
You can transfer up to $50,000 from the RESP to your Retirement Plan (RRSP) tax-free if:
- You have enough RRSP contribution room
- The RESP account is at least 10 years old
- The beneficiary is at least 21 years old and not pursuing post-secondary education
- You are a Canadian resident
4. Close the RESP
You can always withdraw your direct contributions at any time tax-free. However, all federal and provincial government grants must be returned as they can only be used to pay for post-secondary education. Taxes and a 20% penalty are due on investment earnings.
5. Transfer the funds to an RDSP
Investment earnings from an RESP can be transferred to a Registered Disability Savings Plan if they share a common beneficiary. In this case, any government grants must be repaid.