When your kids are on the cusp of starting university and you?re eyeing a hefty tuition bill, you are no doubt thankful for a sizeable balance in your Registered Education Savings Plan (RESP). Sure, it?s a sweet program?but now you have to master the complexities of taking the money out.
Here are four key things you should do with your kids? RESP savings when they approach university or college age: Stop contributions when it makes sense; adjust your asset allocation; structure withdrawals to minimize tax; and deplete your RESP at the right time.
By now you probably know the RESP basics. You can earn up to 20% in ?core? grants (termed ?Canada Education Savings Grants? or CESGs) on your contributions to a maximum lifetime CESG grant total of $7,200 per child. (There are additional grants for low-income families and in certain provinces.) The grants, contributions and investment income are all tax-sheltered until you take the money out. If you withdraw the money while your kids (the ?beneficiaries?) are in post-secondary education, then ?grants? and ?income? are taxable in your kids? hands, which generally means little or no tax if you do it right. Withdrawal of ?contributions? is tax-free.
More onerous rules (including possible grant clawbacks) apply to taking money out after they finish their post-secondary schooling, or if they never attend. So your objective should be to invest wisely while your funds are in the RESP, then minimize potential taxes and clawbacks when you t...