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What to expect when its time to use your RESP

In a recent article by  Money-Smarts, the author discussed some important information subscribers should be aware of in regards to withdrawing money from a Registered Education Savings Plan (RESP). The Maturity of your plan is typically when it is time for your child to go to a post-secondary institution (when they are typically 18 years of age). This is the time when as a subscriber, you would withdraw funds from your RESP to assist the beneficiary with tuition, books and housing. In order to mature your RESP and start withdrawing funds, subscribers are required to provide proof that the beneficiary is attending a qualified post-secondary institution. Approved institutions are determined by the government and we at Heritage, your RESP provider, can verify the school your beneficiary that applies.

Contribution amount and the accumulated income:
Subscribers and beneficiaries should be aware of the difference between the contributed amounts and the accumulated income amount; Contributions withdrawn are not taxed, however, Educational Assistance Payments (EAPs) which is teh accumulated income (gains on contibutions) are taxed at the hands of the beneficary. This is ideal, since the beneficiary ie. the student, typically has little or no income and deductions for education which therefore results in being taxed a small amount to nothing at all.

Withdrawal limitations:
Subscribers and beneficiaries should know what their withdrawal limitations are; typically subscribers are allowed to withdraw a maximum of $5,000 of accumulated income within the first 13 weeks and then after the 13 weeks subscribers are allowed to withdraw as much as of the accumulated income. Check with Heritage Customer Service who can verify your limitations.

What if post-secondary is not in the cards?
RESPs are usually a long-term investment approach, parents sometimes ask “What if my child does not go to school?” Don’t collapse, or withdraw funds from your RESP plan; your plan may be opened for up to 35 years after the year you opened your account; so the beneficiary may decide to atten post-secondary education later on. However, if you do decide to collapse your plan, keep in mind that the government grant (if applicable) is returned back to the government, contributions are tax-fee but the accumulated income is added to the subscriber’s gross income tax of 20%. Many group plans have additional flexibility options where you can transfer the funds to a sibling or into your or Spousal RRSP account, always explore your options.

Always check with Heritage Customer Service who can verify the terms of your RESP. Not all providers offer the same terms and many RESP providers offer flexible options. Contact Heritage Customer Service or your Representative for more details.