If your child doesn't continue their education after high school, you have options. But there may be financial costs and tax consequences.
Keep the RESP open – your child may decide to continue their studies later
Transfer the money to another beneficiary
Transfer the money to your RRSP
Close the RESP
1. Keep the RESP open
An individual or family RESP can stay open for 36 years. If your child doesn't continue their education right away, you can keep the plan open in case they change their mind. Under specified plan rules, RESP accounts for beneficiaries eligible for the disability tax credit can stay open for up to 40 years. Group RESPs have different rules and restrictions, so check with the plan first.
2. Transfer the money to another beneficiary
If you have an individual RESP – You may have the option of naming another beneficiary, but the total Canada Education Savings Grant (CESG) may have to be returned to the federal government.
You can transfer money between individual RESPs for siblings tax free (including any CESGs) if the transfer takes place after 2010 and the child who benefits was under age 21 when the plan was opened.
If you have a family RESP – You can use the earnings to pay for the education of another child under the plan.
If you have a group RESP – Check with plan to find out if you can change beneficiaries or transfer the plan to another beneficiary.
3. Transfer the money to your RRSP
You may be able to transfer up to $50,000 tax-free from the RESP to your RRSP if:
the RESP has been open for at least 10 years,
all beneficiaries are at least 21 and not currently pursuing higher education, and
you are a Canadian resident, and
you have enough contribution room in your RRSP.
Transferring an RESP to an RDSP: Beginning in 2014, you may be able to transfer a beneficiary’s RESP to a Registered Disability Savings Plan (RDSP) on a tax-deferred basis if certain conditions are met. Any Canada Education Savings Grants and Canada Learning Bonds must be repaid to the government to complete this type of transfer. Learn more about eligibility to transfer an RESP to an RDSP.
4. Close the plan
Here’s what happens to the money in the RESP:
Contributions – Your contributions are returned to you. You don’t have to pay tax on any contributions that are withdrawn.
Federal and provincial government grants – You must return any grants to the government — this money can only be used to pay for post-secondary education.
If you have an individual or family RESP – You can get your investment earnings out of the plan if it has been open for 10 years and the beneficiaries have not pursued an education by the time they are 31 years old. The plan subscriber has to pay tax on any investment earnings taken out of the plan, plus a 20% penalty.
If you have a group RESP – You don't get back your investment earnings. They stay in the plan and are shared with the other plan members to increase their payments. In some cases, you may be able to transfer your RESP savings to an individual plan (depending on the terms of your plan).
Content in this section is provided in partnership with Investor Education Fund, a non-profit organization founded and supported by the Ontario Securities Commission that provides unbiased and independent financial tools to help Canadians make better money decisions. To find out more, go to: GetSmarterAboutMoney.ca