Back to School – Spending RESPs

By Heather Rivers, BA, CFP®, FMA 
Communications and Education Specialist,
Odlum Brown Financial Services Limited

Families with children or grandchildren attending post-secondary education often have questions about how and when to access Registered Education Savings Plan (RESP) funds. In this month’s report, we provide some tips and considerations on RESP withdrawals.

RESP withdrawal tips:

• Before requesting an RESP withdrawal, subscribers should have proof of the student’s enrollment in a qualifying education program.¹
• With the above-mentioned proof, RESP withdrawals will typically be approved as an Education Assistance Payment (EAP) or as a Post-Secondary Education Payment (PSE). If not approved (i.e., withdrawn for a purpose other than to pay for post-secondary education) an RESP withdrawal may trigger repayment of grants or bonds to the government.
• In most cases, clients with Odlum Brown RESPs can request whether they prefer to receive an EAP, PSE or a blended payment from both portions of a child’s RESP when making RESP withdrawals.

Choosing Between an EAP or PSE
When eligible, withdrawals can consist of either EAPs from the income, growth and government assistance portions of an RESP; PSE payments from RESP contributions; or a blend of both EAPs and PSEs. The table below compares EAPs and PSEs:

What costs are eligible for EAPs?
Education Assistance Payments can be used for “reasonable costs” while enrolled in a qualifying education program, which may include:

• tuition;
• books;
• accommodation; and
• some transportation and general living expenses.

Tax and budgeting tips for students and their families
EAPs are taxable as part of the student’s income. A student may pay little to no tax on an EAP, depending on their other taxable income, tax credits and deductions. PSEs are withdrawals of contributions made by the subscriber(s) and so can be withdrawn tax-free.

Some families may prefer to withdraw taxable EAPs early on to reduce the risk of repaying grants and bonds to the government if any unused funds remain in the RESP at the conclusion of the beneficiary(ies)’ post-secondary education. As always, personalized advice is necessary in regards to your individual situation. For example, families with children who receive generous scholarships or who might not finish their studies may find this sequence of withdrawals attractive. A subscriber’s contributions to an RESP can still be withdrawn, tax-free, after all EAPs are withdrawn, even if no beneficiary is enrolled in an eligible program.

For additional student tax tips, visit getsmarteraboutmoney.ca.

There are several budgeting tools available from the Government of Canada to help students plan responsibly, including “Budgeting for Student Life” and the “Student Budget Worksheet.”

Opportunities for student health care coverage
BC residents who are 19-24 years old and meet eligibility criteria can be covered by their parents’ Medical Services Plan (MSP) while in full-time post-secondary studies within or outside BC.³ Health and dental benefits are often automatically included in a post-secondary school’s tuition. However, families who provide proof of external coverage (for example, through a parent’s group benefits plan at work) might be able to opt out of the school’s standard coverage. Do your homework to make sure that you understand each plan before opting out.

For more information about RESPs and planning for post-secondary education, please contact your Odlum Brown Investment Advisor or Portfolio Manager.

¹ A qualifying education program can be at a designated institution in Canada or outside of Canada at a university, college or other educational institution providing courses at a post-secondary level. For Canadian programs, a minimum of 10 hours per week of instruction or work per week is required for full-time programs, or at least 12 hours per month if part-time.

² This limit reapplies if the student does not re-enroll for 12 months.

³ https://www.health.gov.bc.ca/msp/forms/mpmb09/intro.health

Odlum Brown Financial Services Limited is a wholly owned subsidiary of Odlum Brown Limited offering life insurance products, retirement, estate and financial planning exclusively to Odlum Brown clients.