For financial adviser Jim Yih, back-to-school ads on television used to mark the beginning of a flurry of phone calls from parents wondering how to set up registered education savings plans (RESPs).
But it has been 12 years since the introduction of the federal Canada Education Savings Grant popularized RESPs, and his clients' then-kindergarten aged kids are now preparing for postsecondary studies.
The Globe's Back to School Guide
That means many parents and grandparents are less concerned now about how to save for schooling and more concerned about how to use their investments.
"I remember back in 1998, 1999, 2000, all the questions about RESPs were questions pertaining to putting money in," Mr. Yih said. "But because they've been around for so long, you see a lot more people asking the questions of how do I get this out? What forms do I have to fill in? What schools do they have to go to in order to qualify?"
Mr. Yih recommends people start thinking about how and when to withdraw from their RESPs well in advance of the day their child or grandchild crosses the stage at their high school graduation.
Here are answers to some of the most common questions he receives about withdrawing from RESPs.
Investor Education: RESPs
Who takes the money out of the RESPs?
The subscriber (usually a parent or grandparent) is in charge of the money. It is up to the subscriber to request the withdrawal. The student has no control over how much money is taken out. The subscriber is not obligated to give all the money to the student at once, and can release it in instalments.
Do they have to use the money for tuition?
No. Once students prove they are enrolled in an eligible institution or educational program, the money is released with no stipulations on how to use it. Books, tuition, rent and even a new car or vacation are all fair game.
What's the difference between withdrawing from my contributions and the accumulated income?
There are two types of funds in an RESP account. You should specify whether the money comes from contributions (the money you put in the account) or the accumulated income (all the money in the RESP that's not contributions, including the Canada Education Savings Grant and growth.) Withdrawals from contributions aren't taxable, but withdrawals from the accumulated income are taxable in the student's hands. Since most students have little or no other income, they aren't likely to pay much, if any, tax at all.
. Weigh in on whether you would stash some extra money into an RRSP, RESP or a TFSA.
Globe Investor discussions:
Can I take out all the money at once?
No. The maximum amount a student can take out in the first 13 weeks of schooling from the accumulated income is $5,000. Students who need more money in this time period can apply to Human Resources and Skills Development Canada.
What if my child or grandchild doesn't go to school?
There are three options. First, subscribers can change the beneficiary. In a family plan, the beneficiary must be under 21 years old and related to the subscriber by blood or adoption. Second, if you have room in your RESP, the beneficiary is at least 21 and the RESP has been open for at least 10 years, you can transfer up to $50,000 to your or your spouse's RRSP. Finally, you can withdraw your original contributions from the plan tax-free, but you will lose any money from the Canada Education Savings Grant. You are taxed on your accumulated earnings or you can donate your investment earnings to a school of your choice.
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