Transferring RESP To RRSP If Your Child Doesn't Go To College
A Registered Education Savings Plan (RESP) is a great way to make sure 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? Here are some things to consider if your child is not pursuing higher education after high school.
Know the RESP Guidelines
If you’re just getting started contributing to your child’s RESP, you should know that the money will grow tax-deferred until it’s withdrawn. As mentioned above, RESPs have a lifetime contribution maximum of $50,000. In addition to the funds that you and your family contribute, the government will match 20% of your contributions—up to $500 each year or a lifetime maximum of $7,200—through the Canada Education Savings Grant (CESG). Once your child graduates from high school, you can begin withdrawing funds from the RESP to pay for post-secondary education expenses.
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 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 with an RESP, you may also be able to transfer funds to them without penalty, depending on your specific plan. Talk with a financial professional to find out more about this option.
Transferring Funds to an RRSP
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 important to keep in mind that, if you transfer to a retirement plan, any accumulated CESG funds will be returned to the government.
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 person’s situation is different, so if you’re unsure how to handle your child’s unused RESP funds, speak with a financial professional to determine the right course of action for your and your child’s needs.
Our advisors can help you with fund management.
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