What if We Never Use Our RESP?

Posted 20 Sep 2016 by Rick Irwin, CFP, CLU

If your child doesn't immediately go on to post-secondary education after high school, don’t worry. You have lots of options. Whether using the money for another child, or for yourself, it won’t have gone to waste.

First of all, an RESP can stay open 35 years after the year the plan was first set up so there is no urgency to dismantle it right away. There are a few other options for what could be done with the RESP funds if school doesn’t seem to be in the cards:

Transfer the money to another beneficiary.

If you have an Individual plan, you can transfer money between your children without tax consequences or repayment of CESGs if the child who benefits from the transfer was under age 21 when the plan was opened.

Transfer the money to your RRSP.

You are able to transfer up to $50,000 tax-free from an RESP to your own RRSP (provided you have enough contribution room available to shelter the transfer) as long as the following conditions are met:

  1. The RESP needs to have been open for at least 10 years;
  2. All beneficiaries of the RESP must be at least 21 and not currently in post-secondary education
Transfer to an RDSP.

If the beneficiary qualifies for the Disability Tax Credit, the money could be transferred, tax-free, to a Registered Disability Savings Plan for that beneficiary. Any CESGs and Learning Bonds must be repaid but the resulting grants from the RDSP will more than outweigh this.

Close the plan.

If none of the above options are possible, the RESP must be closed, with potential tax consequences and repayments of grants. Any money you put into the plan as contributions are returned to you on a tax free basis and any government grants are repaid. With an individual or family RESP, you are able to get your investment earnings out of the plan under the following conditions

  1. The RESP must have been opened for 10 years;
  2. The beneficiaries must have not pursued higher education by the time they are 31 years old.

In addition to the tax payable on investment income earned inside the plan, the RESP provider is required to remit a 20% penalty to the government on the earned interest (growth).

In the case of a Group RESP, the investment income earned by the plan is not returned. Instead, the income earned on you contributions stays inside the plan and is paid out to members in that plan who do pursue post-secondary education, within the terms of the group plan.