Transferring RESP To RRSP If Your Child Doesn't Go To College

Todd Ellis |

Last Updated: February 23, 2023

A Registered Education Savings Plan (RESP) is a great way to ensure your children have the funds to pursue higher education after high school. Once you open an RESP, you, as well as your family and friends, can contribute funds to it whenever you’d like—up to $50,000 over the course of your child’s life. But what happens if your child decides that they don’t want to attend college? Before we recommend things to consider if your child is not pursuing higher education after high school, let's talk about what precisely an RESP is.

What is a RESP?

A Registered Education Savings Plan (RESP) is a government-registered savings plan that helps families save for their children's post-secondary education. It allows parents, grandparents, or other family members to contribute money into an account that can be used to pay for tuition, books, and other educational expenses at a college, university, or trade school.

Types of RESPs

There are two main types of Registered Education Savings Plans (RESPs): individual plans and family plans. Understanding the differences between these two types of RESPs can help you choose the right one for your needs and goals.

An individual RESP is a savings plan that is set up for one child and is owned and managed by a single contributor, such as a parent or grandparent. The contributor can choose the investment options and make contributions to the plan on behalf of the child. An individual plan is a good choice for families with one child or for families who want to have separate plans for each child.

A family RESP, on the other hand, is a savings plan that can cover multiple children and can have multiple contributors. This type of plan is owned by a single primary subscriber, who is responsible for managing the plan and making contributions on behalf of the children. A family plan is a good choice for families with multiple children or for families who want to pool their resources to save for education.

Know the RESP Guidelines

If you’re just starting to contribute to your child’s RESP, you should know that the money will grow tax-deferred until it’s withdrawn. This is one of the main benefits of an RESP that encourages saving for education. Contributions to an RESP are not tax-deductible, but the investment income earned within the plan grows tax-free until it is withdrawn to pay for education. In addition, the government provides a grant called the Canada Education Savings Grant (CESG), which adds extra money to an RESP account. The CESG is a 20% matching grant on the first $2,500 of annual contributions, up to a lifetime maximum of $7,200 per child.

Holding on to RESP Funds

What happens to that money if your child decides to enter the workforce without post-secondary education? Your first option is to keep the money in the RESP account. RESPs can remain open for up to 35 years, and you can contribute to them up until your child turns 31, up to the $50,000 lifetime limit. They may change their mind about further education in the future and can still use those funds. 

RESPs can also be used for apprenticeship and part-time job training programs. Even if your child doesn’t pursue one of these paths right after high school, they may want to gain additional job-related skills in the future. Keeping their RESP open will ensure that they have the funds to do so when they’re ready. 

If you have another child who also has a Registered Education Savings Plan (RESP), you may be able to transfer funds from one plan to the other without incurring any penalties, depending on the specific terms of your plan. It's a good idea to speak with a financial professional to learn more about this option and how it may apply to your situation.

Transferring Funds to an RESP

Another option, if your child decides not to pursue post-secondary education, is to transfer RESP funds to your Registered Retirement Savings Plan (RRSP). If you choose to transfer funds, make sure you have room in your RRSP contribution limit for that year. This transfer is taxable but can be easily offset by the RRSP deduction. It’s essential to remember that if you transfer to a retirement plan, any accumulated CESG funds will be returned to the government. 

Withdrawing Funds

If your child chooses not to pursue further education, you can also close their RESP account and withdraw funds. Once you close the account, you can withdraw your contributions tax-free, but the interest earned on those funds will be taxed at your income rate plus 20%. Your contributions can be withdrawn at any time, but to withdraw interest, the following requirements must be met: 

  • The child named in the RESP is at least 21 and not in school 
  • The RESP is at least 10 years old 
  • You are a Canadian resident 

Just as with transferring funds to an RRSP, any CESG funds must be returned to the government. 

Every individual's financial situation is unique, so if you're not sure what to do with your child's unused RESP funds, it's a good idea to consult with a financial professional to determine the best course of action for your and your child's needs. They can help you understand your options and make informed decisions based on your specific circumstances.

If you’d like professional advice on this topic, do not hesitate to reach out to us.

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