Keep in mind that withdrawals from an RESP can be used to cover more than just tuition – and other tips
One of my son’s friends is studying veterinary medicine in university. He leaves this week for school, and I asked him what courses he’s taking this year. “I’m taking all the courses I need to become a licensed vet, but I’m also doing a minor in taxidermy,” he explained. “That’s great!” I replied. “So, no matter what skills you apply, the customer is getting their dog back. That’s good thinking.”
Withdrawals from an RESP can be used to cover more than just tuition. You can pay for any expense related to a postsecondary education, including books, residence, living expenses and even trips home.It’s going to be smart to minimize the tax on any withdrawals from an RESP. There are different types of withdrawals, and they can be taxed differently. The most common withdrawals are those of contributions that were made to the RESP over the years.
If you make a withdrawal of accumulated earnings in the RESP for yourself, as the subscriber, you’ll face tax plus a 20-per-cent penalty on those withdrawals, in addition to having to repay grants from the government. These are called “accumulated income payments” and should be avoided if you can. You can transfer funds in the RESP to your RRSP within your contribution limits if necessary, and this will avoid the tax and penalty.
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