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What if you have funds remaining in your RESP?

Published on: May 4th, 2023


University and college graduations are just around the corner. If funds remain in your Registered Education Savings Plan (RESP) after your child graduates, you have a couple of options available to you.

If you have another child, you can use the remaining RESP funds to pay for their education, even without a family plan. Or, you can keep the RESP open for 35 years after it was established in case a child returns to school.

If you close the RESP, you get back your original contributions tax-free and return any grant money to the government. You also receive the plan’s earnings as an Accumulated Income Payment (AIP), and it’s heavily taxed – first as regular income and second as a penalty of 20% (12% for Quebec residents). However, you can transfer up to $50,000 of the AIP to your or your spouse’s Registered Retirement Savings Plan (RRSP), which defers the tax as regular income and avoids the penalty tax. If you don’t have contribution room, you could stop making RRSP contributions until you create enough room for the transfer.

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