An RESP is the best way to save for a post-secondary education, but it’s not without its complexities. If you’ve been saving for a number of years, you’ll forget that there was quite a bit of paperwork to do when you opened an RESP. However due to the government grants you receive, your financial institution has a number of steps to follow to help show the government that you are indeed using these funds for their prescribed purpose.
Quick facts: What is the EAP and PSE?
The Educational Assistance Payments (EAP) is paid to the beneficiary of an RESP to pay for postsecondary expenses, and includes money that the government gave you in grants and bonds, as well as the accumulated income from your investments. The Post-secondary Education Payments (PSE), on the other hand, is the portion of the payment that includes the original funds the subscriber contributed to the RESP.
What is ‘proof of enrollment’?
Proof of enrollment is required by ESDC and CRA and is defined as acceptance of entry in an educational institution from the Registrar's Office. The financial institution managing your RESP must do their due diligence to confirm this proof of enrolment to the government.
In order to qualify for Educational Assistance Payments (EAP) and Post Secondary Education Payment (PSE), proof of enrollment is required, and certain criteria must be satisfied. Proof of enrollment criteria includes ALL of the following:
- Qualifying Educational Program (QEP) Name
- Country of Academic Institution
- Student Name and Address
- Length of Program (including Academic Year – start and end dates)
- Hours of Instruction
- Year Equivalents (number of degree credits successfully completed)
- Confirmation of current enrollment, or enrollment documentation dated within the previous 6 months of the request)
For beneficiaries requesting the EAP for their first school year, the criteria can be found in one or more documents that the beneficiary will have received from their educational institution.
Possible examples include: receipts, official timetable, verification of enrollment, or acceptance letters. Acceptance letters on their own rarely satisfy all the Proof of Enrollment criteria. Beneficiaries may have received multiple acceptance letters if they applied to more than one institution.
How is the RESP taxed?
Money inside an RESP is not all treated equally when its taken out of the plan. Because the PSE is contributed with after tax money, this money can be withdrawn without any taxes owing.
The EAP money is handled differently because it has not been taxed yet by the government. When the money is taken out to fund an education, the EAP is considered taxable income for the student. Luckily most students do not have high incomes, so there is usually very little taxes owing. There is a withdrawal limit of $5000 of the EAP in the first 13 weeks of school, but there is no rule limiting the withdrawal of the PSE funds.
When should you start the RESP withdrawal process?
Your financial advisor can help you navigate the complexities of RESP withdrawals, but just don’t leave it until the last minute. It's recommended you begin talking with your advisor about withdrawals as soon as the student has decided on when and where they will be attending post-secondary school.