Many parents expect that after high school, their children will go on to some kind of post-secondary education. In anticipation of this path, parents, guardians or other family members often open a registered education savings plan (RESP) and regularly contribute to it to build post-secondary funds for their child, while taking advantage of the Canada Education Savings Grant.
But the truth is that not everyone wants to take a traditional post-secondary route towards a career. Young adults might want a gap year before committing to a path of study, or maybe want to explore gig work instead of completing a degree in pursuit of a permanent full-time role.
So when your child chooses a different course than the one you had imagined for them, what happens to the RESP you’ve been building for 18 years? Here are two common scenarios.
When your child doesn’t attend a post-secondary program right after high school
An RESP can stay open for 36 years1 so they have lots of time to withdraw funds. Plus, qualifying educational programs are not limited to conventional undergraduate or graduate studies at Canadian universities. In Alberta alone there are 245 designated educational institutions.
When your child decides not to pursue post-secondary education
If your child decides not to enrol in a qualifying post-secondary program, you still have options for your accumulated RESP funds. You can:
- Appoint a sibling of the beneficiary, who is under 21 years of age, as a replacement beneficiary.
- Transfer the income earned (to a maximum of $50,000) into an RRSP, provided you have unused contribution room. Additionally, these conditions apply:
- To transfer funds to an RRSP, the RESP must have been open for at least 10 years.
- All beneficiaries are at least 21 and not currently continuing their education after high school.
- You are a Canadian resident.
- The rules of the plan allow it.
- Transfer the money to a registered disability savings plan (RDSP) if the plans share a common beneficiary and certain conditions are met.
- Withdraw the funds. You do not have to pay tax on any contributions; income earned in the RESP is subject to a 20% surcharge in addition to income tax. Grant money must be returned to the government. Additional conditions apply, as follows:
- The plan must have been open for 10 years.
- The beneficiaries are at least 21 and not currently continuing post-secondary education.
Learn more about each option and the applicable conditions on this Government of Canada page. An ATB Wealth advisor can also walk you through your options to determine the best course of action.
Unless the plan is a specified plan, which is an individual RESP plan for a beneficiary who is entitled to the disability tax credit, specified plans must be closed by the end of the year of the 40th anniversary of the plan.
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