If your child doesn’t continue their education

If your child doesn’t continue their education after high school, you have options. But there may be financial costs and tax consequences.

4 options

  1. Keep the RESP open – your child may decide to continue their studies later
  2. Transfer the money to another beneficiary
  3. Transfer the money to your RRSP
  4. Close the RESP

1. Keep the RESP open

An individual or family RESP can stay open for 36 years. If your child doesn’t continue their education right away, you can keep the plan open in case they change their mind. Under specified plan rules, RESPRESP See Registered Education Savings Plan.+ read full definition accounts for beneficiaries eligible for the disability tax creditTax credit The amount you can deduct from your income when you file your taxes. This lowers the tax that you owe.+ read full definition can stay open for up to 40 years. Group RESPs have different rules and restrictions, so check with the plan first.

2. Transfer the money to another beneficiary

  • If you have an individual RESPIndividual RESP An RESP that you open for a single child or other beneficiary. The beneficiary does not have to be related to you by blood. You choose when and how much you want to contribute.+ read full definition – You may have the option of naming another beneficiaryBeneficiary The person(s), institution, trustee or estate you choose to give money, property or other benefits when you die. You may name beneficiaries in your will, insurance policy, retirement plan, annuity, trust or other contracts.+ read full definition, but the total Canada Education Savings Grant (CESG) may have to be returned to the federal government.You can transfer money between individual RESPs for siblings taxTax A fee the government charges on income, property, and sales. The money goes to finance government programs and other costs.+ read full definition free (including any CESGs) if the transfer takes place after 2010 and the child who benefits was under age 21 when the plan was opened.
  • If you have a family RESPFamily RESP An RESP for more than one child. The children must be related to the person who opens the RESP.+ read full definition – You can use the earningsEarnings For companies, it’s the money they make and share with their shareholders. For investors, it’s the money they make from their investments.+ read full definition to pay for the education of another child under the plan.
  • If you have a group RESP – Check with plan to find out if you can change beneficiaries or transfer the plan to another beneficiary.

3. Transfer the money to your RRSP

You may be able to transfer up to $50,000 tax-freeTax-free Money that you do not pay tax on.+ read full definition from the RESP to your RRSPRRSP See Registered Retirement Savings Plan.+ read full definition if:

  • the RESP has been open for at least 10 years,
  • all beneficiaries are at least 21 and not currently pursuing higher education, and
  • you are a Canadian resident, and
  • you have enough contribution room in your RRSP.

Transferring an RESP to an RDSPRDSP See Registered Disability Savings Plan.+ read full definition

Beginning in 2014, you may be able to transfer a beneficiary’s RESP to a Registered Disability Savings Plan (RDSP) on a tax-deferred basis if certain conditions are met. Any Canada Education Savings Grants and Canada Learning Bonds must be repaid to the government to complete this type of transfer. Learn more about eligibility to transfer an RESP to an RDSP.

4. Close the plan

Here’s what happens to the money in the RESP:

  • Contributions – Your contributions are returned to you. You don’t have to pay tax on any contributions that are withdrawn.
  • Federal and provincial government grants – You must return any grants to the government — this money can only be used to pay for post-secondary education.
  • InvestmentInvestment An item of value you buy to get income or to grow in value.+ read full definition earnings
    • If you have an individual or family RESP – You can get your investment earnings out of the plan if it has been open for 10 years and the beneficiaries have not pursued an education by the time they are 31 years old. The plan subscriber has to pay tax on any investment earnings taken out of the plan, plus a 20% penalty.
    • If you have a group RESP – You don’t get back your investment earnings. They stay in the plan and are shared with the other plan members to increase their payments. In some cases, you may be able to transfer your RESP savings to an individual plan (depending on the terms of your plan).

Warning

You may forfeit all group plan earnings if your child doesn’t continue with their education after high school. You have 60 days to cancel plans provided by scholarship planScholarship plan A type of Registered Education Savings Plan (RESP) that pools together the money of many investors. An investment manager invests the money for you, often in lower-risk, fixed-income investments such as bonds and GICs. Enrolment fees are often high and there may be strict rules.+ read full definition dealers (who offer group plans) without any penalty. Be sure to read and understand the rules outlined in the short Plan Summary provided in the plan prospectusProspectus A legal document that sets out the full, true and plain facts you need to know about a security. Contains information about the company or mutual fund selling the security, its management, products or services, plans and business risks.+ read full definition.

Take action

Shop around before you buy. Different RESP providers and plans have different rules and fees.

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