RESPs for the educated mind

The kids are all right

Strategy. Strategy. Strategy.

You have watched your child grow and develop. You can’t believe it, but your little bundle of joy has grown up, has her own opinions and philosophies and is now ready to embark on one of her greatest adventures. Higher education. Goodbye high school. Hello post-secondary education.

Remember your own first year in university or college? Everything looked so big … How could you possibly get from one end of the campus to the other in five minutes? The excitement … The feeling of learning and collaborating … And now, it’s your own child ready to swing the door open to a whole world of possibilities. Immensely proud, you have some small, nagging worries about your child getting a great education and a smooth path into the future.

You have planned for this, though. Long ago, you established a Registered Education Savings Plan (RESP). And now, that long-term thinking is about to pay off. You might think your financial planning and strategy for you child’s education is done …

Think again.

Did you know that the way money is withdrawn from an RESP is enormously important? Strategizing doesn’t end now – it evolves.

Just like that little baby that grew into a teenager ready to take on the world.

• Limit withdrawals – Remember the government … The government limits the withdrawal of RESP income and Canada Education Savings Grant funds including the CES Grant. Government restrictions on a maximum of $5,000 in the first 13 weeks of your child’s program, might leave you searching for extra funds, tempting you to grab some extra cash from the RESP to add to the $5,000. Avoid this redemption, if possible. Think long-term. Investing is often about deferring tax. Redeeming early undermines a registered plan’s tax-deferred growth potential just as leaving college or university early may limit your child’s future possibilities. Even worse, if the program doesn’t qualify, you’ll have to repay a portion or the entire CES grant!

Wait a minute … Didn’t you start this plan to give your child an advantage?

Yes. And knowledge will help you graduate RESP complexities with honours.

• Get permission for an early withdrawal – And get it in writing. You can exceed the $5,000 limit on the withdrawal of RESP earnings by requesting permission in writing from the Minister of Human Resources. Avoid withdrawing plan capital (and a repayment of CESG funds), but make your request early. By making the request as soon as you can, you’ll get a timely response and be able to determine if this plan works for you before school begins.

The government could request a payback …

• Strategic withdrawals avoid paybacks – The government may ask you to pay them back the CESG grant money if they see earnings remaining in the plan after your child graduates or leaves school. Avoid the potential CESG payback, be sure to use the plan’s earnings before withdrawing contributions.

Part Two is here.