It is amazing how quickly life passes by. All of a sudden my oldest son, Kaden, is graduating from high school. He has been accepted to TRU's Bachelor in Business Administration this fall (following his dad and uncle's footsteps as TRU alumni). This means the time has come to draw down his Registered Education Savings Plan (RESP).
Below are a few suggestions:
- Ensure you are reviewing how the RESP is invested
Typically, around grade 9, we suggest tilting the RESP towards more secure investments like GICs & Bonds as funds are likely to be drawn over the next few years.
- Build a budget for your child's post-secondary needs
This will help assess how much you may need to draw from their RESP each year. Moving away to university is considerably more expensive than staying close to home. Grants and scholarships can often help ease the load. Tuition fees and typical costs can be found on university websites. If your RESP is a family plan with other siblings, ensure to consider everyone's needs and timing.
- Request a detailed RESP Summary
The financial institution that holds your RESP can provide a summary including all contributions, government grants and growth per child. Some terminology to be familiar with:
Post-Secondary Education (PSE) Withdrawals: are tax-free payments and consist of the contributions (principle)
Education Assistance Payments (EAP): are taxable, include grants and growth and must be paid to the beneficiary. EAP draws are limited to $5,000 or $2,500 in the first 13 weeks for full-time & part-time schooling, respectively. The 2023 Federal Budget is proposing increasing EAP withdrawals to $8,000.
- RESP withdrawals
Your child's program needs to meet certain qualifying criteria. Some programs require as little as 12 hours a month. Visit www.canada.ca for details. The financial institution will require proof of enrollment to process the withdraw which is typically provided from the admissions departments. Draws over $25,268 require supporting documentation and receipts.
Provided your student's income is low, it is generally best to remove the taxable EAP funds out as quickly as possible then withdrawal the non-taxable PSE. As a reminder, these funds can be applied to any expense (rent, food, books, tuition, etc.).
- What if my child doesn't attend post-secondary?
RESPs provide a generous timeline giving children up to the age of 35 to attend post-secondary education. Most RESPs are Family Plans which allow benefits to be shared. Worst case scenario, a contributor can always get their money out, but would forfeit the grants received and pay tax on the growth.
In summary, there are a variety of strategies to consider, as always, please seek professional guidance.
Until next time…Invest Well, Live Well.
The views expressed are those of Eric Davis, Senior Portfolio Manager and Senior Investment Advisor, and Keith Davis, Associate Investment Advisor, TD Wealth Private Investment Advice, as of June 28, 2023 and are subject to change based on market and other conditions. Davis Wealth Management Team is part of TD Wealth Private Investment Advice, a division of TD Waterhouse Canada Inc. which is a subsidiary of The Toronto-Dominion Bank. For more information: 250-314-5124 or keith.davis@td.com.
