Withdrawing RESP funds during uncertain times

Withdrawing RESP funds during uncertain times

We’ve heard the phrase “the new normal” on the news, in our social media feeds and from colleagues. So how do these uncertain times impact post-secondary education and RESP funds?

Many universities and colleges are transitioning to online or majority online courses starting in the fall semester, creating many questions. What happens if students take a gap year? Or only go to school part time? How do I know how much to withdraw? Luckily, we have you covered.

Flexibility of withdrawal
The good news is that you can choose when and how much to withdraw from your Knowledge First Financial RESP based on your student’s needs. You also have the flexibility to withdraw funds as a Post-Secondary Educational Contribution Payment (PSE), Education Assistance Payment (EAP), or a combination of the two.

EAPs can be withdrawn when a student is in school, or within 6 months of completing their program. Once EAPs are withdrawn, PSE withdrawals can then be made tax-free at any time. They can also be withdrawn up to 35 years from the date the plan was opened. It’s an important point to consider, especially if your student plans to delay, pause or extend their studies, or even attend graduate school. Whatever their decision, your student will be reassured to know they have the funds to support their education.

Understanding your plans
Before making the big decision, it’s important to know the differences between the plans mentioned above. The subscriber can request a PSE Contribution Withdrawal, an EAP or a combination of both. A PSE consists of your net contributions and Loyalty Bonus, if you have a Flex First Plan.

However, only the student can withdraw funds from an EAP, and those funds are considered taxable student income. An EAP is the income earned on your contributions, government grants, income the student earned and includes the foundation supplement.

Withdrawal limits
You may be wondering whether there are limits on how much can be withdrawn as an EAP. Students can indicate the amount they want to receive or choose the entirety of the funds available, based on the limits set by the Canada Revenue Agency:

  • $5,000 for the first 13 weeks of study in a full-time program
  • Or $2,500 for each 13 weeks of study in a part-time program
  • Or $22,000 a year

If your student needs a higher amount to cover expenses than the CRA allows for an EAP, you could consider supplementing the EAP with a PSE withdrawal, or requesting an additional EAP after the first 13 weeks of study, later on in the academic year.

Student financial needs
For students starting or returning to their studies, understanding full tuition and living costs will help them use their funds wisely. When estimating a student’s financial needs, remember it’s not only tuition, but books, accommodation, other living expenses, and transportation. Educational withdrawals from RESPs can be used to help pay for all of these educational expenses.

This summer, students may be facing more questions than usual when it comes to post-secondary education. Accessing RESP funds to further their education should never be a question mark. For further support and answers to your RESP questions, contact our customer service team at contact@kff.ca or through our Live Chat option at www.knowledgefirstfinancial.ca.