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From Pivot Magazine

Heed these tips when dealing with an unused RESP

Transferring funds to an RRSP may make sense, but weigh all your options before doing so, experts say

Man and woman talking over paperworkWhen considering closing a RESP, or transferring the eligible funds, make sure you fully assess your financial situation and understand any tax implications, say experts (Getty/Hill Street Studios)

You scrimped and saved since they were little, building up an education fund only to find out your efforts may be in vain. 

Now all grown-up, your child has decided not to pursue a post-secondary education, or did so, but left some funds behind. 

You can reclaim your contributions, but what about the accumulated income sitting in the Registered Education Savings Plan (RESP)? Is it worth investing it back into your own Registered Retirement Savings Plan (RRSP), or closing the account? Are there other options?

Whatever you decide, conditions will apply on whether the RESP’s accumulated income can be received other than as education assistance payments (EAPs). In most situations, only the RESP subscriber can receive this income, with beneficiaries being over 21 years old and not eligible for other EAPs. The RESP must also be at least 10 years old.   

Her are three ways to utilize the accumulated income, assuming you are the RESP subscriber and you qualify for disbursement.


If you close the RESP, although the amount you contributed won’t be taxed, the plan’s accumulated earnings will be taxed as income at your effective tax rate, plus an additional 20 per cent. 

“Even if you are in a low tax bracket, it’s ends up being pretty costly to pull the money straight out,” says certified financial planner Jason Heath, managing director of Objective Financial Partners, Inc.

In addition, any remaining grants or bonds, will have to be repaid to the government by your financial institution. 

“That’s the shame of it. You were given a bit of a ‘gimme’ that now you have to give back,” says CPA Bob Gore of Robert Gore and Associates. 

The 20 per cent tax will generally offset any benefit from the ability to defer income, Gore adds.   

Timing could be key here for a taxable withdrawal, adds Heath, as the sooner you know for certain that the RESP will go unused, the better to move the money. The concern is that the effective tax rate on future appreciation could be high given the 20 per cent tax will apply along with regular income tax (unless an RRSP transfer can be used as discussed later).   


Remember, kids are known to change their minds, Gore says. If you think this could be the case with your child, don’t make any rash decisions, he adds.

“Until you know for sure that they don’t [need the RESP]. When they are out in the world working and they’ve got their feet on the ground. Don’t do it if you don’t know the answer to those questions,” he says.

A RESP can be open for up to 35 years—with contributions possible up to the child’s 31st birthday to a $50,000 maximum. There is plenty of time to make a decision. Keeping the account open allows your child to use the funds, if they decide to pursue a post-secondary education later.

“Heaven forbid little Johnny or Suzie have a change of heart and do go back to school,” says Gore. “You’re out of luck, as the funds will not be available except as a taxable withdrawal of RRSP funds, whereas if you leave the funds in the RESP, the withdrawals will be taxed to the student at a tax rate of zero, typically.”

Remember, RESPs can also be used for a variety of pursuits from college and university degrees to apprenticeship programs and trade schools, taken full or part time, as long as it’s a specified education program. As mentioned earlier, however, accumulating income in the RESP can create a cost if it turns out that it is paid to you as a taxable amount.

Alternatively, you may also be able to transfer the RESP funds to an RESP for another child or name another child as beneficiary—without immediate tax implications. Whether this will be possible will depend on several factors including the type of plan you bought. 


Another option to consider is transferring up to $50,000 of the accumulated income to an RRSP, provided that you have sufficient RRSP room. Although the transfer amount is taxable, you can offset that income with an RRSP deduction and the 20 per cent tax will not apply. Other conditions do apply for this transfer.   

Similar to closing a RESP, any funds received via grants or bonds will be returned to the government by your financial institution. 

For those lacking RRSP contribution room, Heath recommends holding off on contributions a year or two before making the transfer, leaving room, while diverting that invested money elsewhere.   

“There may be other things you can do with cash flow such as opening a TFSA or paying off debt,” he says.

“[Closing a RESP] is not a very common situation. Part of it is knowing how to go about making the transfer in the first place…[and] the RRSP is always a nice back up plan.”


Get to know the ins and outs of RRSPs including when you should start contributing, what to do if you’ve overcontributed or want to withdraw early, and how to handle contributions as a couple.