RESP Withdrawals 101: Tax-Efficient Strategies for When It’s Time to Pay Tuition

For many Canadian families, the Registered Education Savings Plan (RESP) has been the backbone of their children’s post-secondary funding strategy. It’s a powerful account where contributions grow tax-free, the government adds up to $7,200 in Canada Education Savings Grants (CESG), and investment growth compounds for years. 

But when it’s time to pay tuition, many families discover that withdrawing money from an RESP isn’t as straightforward as putting it in. The way you draw funds can affect how much tax your child pays, and how long the savings last. Let’s break down the basics, then look at strategies to keep more money in your family’s pocket.  

Understanding the Two Types of RESP Withdrawals 

An RESP has two “buckets” of money: 

1. Post-Secondary Education Payments (PSE): Your original contributions. These can be withdrawn at any time, tax-free, because you’ve already paid tax on the money before contributing. 
2. Educational Assistance Payments (EAP): This includes investment growth, CESG amounts, and other government incentives. EAP withdrawals are taxable in the student’s hands. 

The advantage? Most students have little to no other income, so EAP withdrawals are often taxed at a very low rate or not at all. The challenge? If you withdraw too much in one year, you can push the student’s income high enough to trigger tax.  

Timing Matters with RESP Withdrawals 

RESP withdrawals can begin as soon as your child is enrolled in an eligible post-secondary program. In the first 13 weeks of enrollment, EAP withdrawals are capped at $8,000 for full-time students (or $4,000 for part-time). After that, there’s no set limit but careful pacing can keep taxes low and avoid prematurely depleting the account. A six-month grace period is available after the beneficiary stops being enrolled in a post-secondary education program. During this time, beneficiaries can withdraw excess RESP savings in the form of Educational Assistance Payments (EAP).  

Smart Withdrawal Strategies 

1. Start with EAPs in Low-Income Years  If your child isn’t working much during school, consider taking larger EAP withdrawals early to fully use their basic personal amount and education tax credits without triggering tax. 
2. Coordinate with Summer Employment  Many students earn income in summer. Factor this into the withdrawal schedule by taking smaller EAP amounts in high-earning years and larger ones in low-earning years. 
3. Withdraw Gradually to Avoid a Lump-Sum Tax Hit  Spreading EAP withdrawals over multiple years ensures the income is taxed at the lowest possible rate each year. 
4. Don’t Leave All EAPs Until the End  If there’s EAP money left when the student finishes school, withdrawing it can be costly. Any unused CESG must be repaid to the government, and leftover growth is taxed at the student’s rate plus a 20% penalty if taken as an Accumulated Income Payment (AIP). 
5. Use PSE Funds for Flexibility  If tuition and expenses are fully covered from EAPs, PSE withdrawals can provide extra cash without affecting the student’s taxable income. 

 What If Your Child Doesn’t Use All or Any of the RESP? 

If your beneficiary doesn’t attend a qualifying program, you can: 

• Transfer the investment growth (up to $50,000) to your RRSP if you have room, avoiding the 20% penalty. 
• Change the beneficiary to another qualifying family member. 
• Withdraw your original contributions tax-free. 

 The Holistic Advisor Advantage 

RESP withdrawal planning isn’t just about avoiding tax, it’s about sequencing withdrawals to maximize grants, investment growth, and family flexibility. An experienced advisor can coordinate RESP withdrawals with other family income, tax credits, and education-related deductions to develop an all-encompassing financial strategy. If you have a child heading to school this fall or if you’re within a year or two of using your RESP, now is the perfect time to build a withdrawal plan. Reach out to your advisor today. 

Disclaimer: This article is for general information only and does not constitute personalized tax or financial advice. RESP rules can change, and each family’s situation is unique. Please consult your CPA or qualified financial advisor before making withdrawal decisions.