My three kids chose different educational paths. How do I withdraw RESP funds in a way that’s fair to them and avoids unnecessary taxes? – MoneySense

So, that’s how a withdrawal technique sometimes goes. Getting again to your distinctive state of affairs, keep in mind that after 13 weeks you possibly can draw as a lot from an RESP as you prefer to— it’s not depending on college prices. Additionally, it’s only the grant, if maximized, that has to go to a selected beneficiary. This provides you a chance to time your EAP withdrawals. If the grant has not been maximized, you too can make the most of the completely different tax charges of every of your youngsters. 

For instance, if two of your youngsters didn’t discover employment this previous pandemic summer season, it might make sense to attract a bigger sum than typical from their taxable EAP, even when they don’t want the cash. If there may be any extra cash, it may be added to their TFSA or your TFSA. When the cash is required by any of your youngsters, it may be distributed the place it’s crucial.

For those who haven’t maximized the grant for every baby, you possibly can share the grant amongst your youngsters. Extra of the EAP may go to the kid with the bottom tax charge. Simply bear in mind the utmost grant every baby can obtain is $7,200. 

Lastly, you’ll need to withdraw all the RESP cash by the point your youngsters have accomplished their post-secondary training. For those who don’t and there may be nonetheless cash remaining within the RESP, you possibly can draw all the unique capital tax-free, whereas any remaining EAP shall be taxed at your marginal tax charge plus a further 20%. In case you have RRSP contribution room you possibly can switch the EAP to your RRSP and declare a deduction.

If you end up in a state of affairs the place you’ve gotten maximized your RRSPs and you’ve got cash remaining in an RESP, it might make sense to delay drawing the cash till the RESP must be closed, within the thirty sixth yr after opening.

Whereas the cash is within the RESP, the expansion is tax-sheltered. Within the years forward, certainly one of your youngsters could return to post-secondary training, and you might end up in a decrease tax bracket.  

So sure, there’s a minimal EAP it’s best to draw, however be sure to get the grant. Regardless that it will likely be taxed, you and your son will nonetheless come out forward.

Allan Norman, M.Sc., CFP, CIM, RWM, is a fee-only licensed monetary planner with Atlantis Monetary Inc. and a completely licensed funding advisor with Aligned Capital Companions Inc. He will be reached at atlantisfinancial.ca or [email protected].