RESP: What to do if your child chooses not to pursue postsecondary education?

Contributing to a Registered Education Savings Plan (RESP) is investing in your child’s future and helping them achieve their goals. However, the path they choose to follow may not be the one you would have expected…

Maybe they want to enter the job market right after high school or maybe even travel rather than go straight to university or college.

Whatever the case may be, if your child decides to end their postsecondary education, whether temporarily or definitively, your savings are far from being lost! Set aside this false belief, because there are many options for you to choose from when it comes to the RESP you have been contributing to since your now adult child was in diapers.

What can RESP savings be used for?

An RESP can be used to finance a range of academic and professional programs:

• Postsecondary studies (college/university)
• Studies in an eligible trade or business school
• Living costs such as housing, school supplies and food for the academic year

And this includes both full- and part-time programs.

What is the contribution limit for an RESP?

The total contribution limit for an RESP is $50,000 per beneficiary! There is no annual contribution limit for an RESP. However, government grants are subject to certain annual limits. Contributing regularly each year is therefore a good strategy to make the most of this benefit.

Here’s a tip: See if you qualify for government grants and benefit from programs like the Canada Education Savings Grant (CESG), the Canada Learning Bond (CLB) and the Quebec Education Savings Incentive (QESI) or British Columbia Training & Education Savings Grant (BCTESG).

Five options to consider when an RESP has gone unused

Even if an RESP is intended to give your child a financial leg up when it comes to their postsecondary education, this savings solution is much more flexible than many think. In fact, you can recuperate your contributions in a variety of ways, depending on your child’s schooling.

1. Wait and leave the RESP open

Has your child decided not to attend college or university? No problem! As specified by the Government of Canada, RESPs can remain open for up to 35 years! You can rest assured that your child will have all the time they need if they change their mind and return to school with the help of the funds you have saved.

2. Designate a new beneficiary

That’s right, you can transfer individual RESP funds to someone else. You can help cover the cost of their education with a tax-free transfer! If yours is a family RESP, the other beneficiaries can use the contributions.

Important! The new beneficiary must respect certain criteria. To learn more, contact your financial security advisor at iA Financial Group!

3. Close the RESP

If your child decides they will definitely not be continuing their studies, you can close the RESP. In this case, you will recover all your contributions tax free, along with the revenue generated from the savings fund. However, the interest generated by your investments will be taxed at your normal tax rate, with an additional 12% for residents of Quebec and 20% for residents of the rest of Canada.

Important! The funds received from government benefits must be returned.

Please note that investments can only be recovered if these three criteria are met:

• The RESP has been open for at least ten years
• The RESP’s beneficiary is over the age of 21
• The RESP’s beneficiary has decided not to pursue their postsecondary studies

4. Transfer the money from the RESP to an RRSP

What if you could defer paying taxes on the interest generated by your child’s RESP? Even if the benefits from the government must be returned, you can decide to transfer your RESP contributions to a Registered Retirement Savings Plan (RRSP).

You can transfer your RESP to an RRSP if the following conditions are met:

• The RRSP has been open for at least ten years
• The preestablished rules of your RRSP permit this transfer
• Your RRSP contribution room is sufficient for the amount of the transfer
• The RESP’s beneficiary is over the age of 21
• The RESP’s beneficiary has decided not to pursue their studies

5. Transfer the money from the RESP to an RDSP

Do you know about the Registered Disability Savings Plan (RDSP)? This long-term investment solution is intended to help Canadians with disabilities build their savings. It is therefore possible to transfer the funds from an RESP to an RDSP if the two plans have the same beneficiary and if all the conditions are met.

What is the best way to save?

Whether you use an RESP to save for your child or another savings solution, it’s important that the product fits your needs and goals. Our advisors can help you determine the best investment decisions for your situation!