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How To Make AIP Withdrawals From An RESP
In many different circumstances, the funds in your Registered Education Savings Plan (RESP) may not be needed to pay for the post-secondary education of your beneficiary. No matter the reason, these FAQs will help you determine the best way to withdraw your funds.
There are three types of RESP payments: Educational Assistance Payments (EAP), Refund of Contributions (ROC) and Accumulated Income Payments (AIP). Generally, an EAP is a payment to the beneficiary to fund post-secondary education. An ROC is simply a repayment of the contributions that have been made to the RESP. When the beneficiary does not pursue post-secondary education, an AIP is a payment of accumulated income to the subscriber. To receive an EAP or AIP, specific conditions must be met. While an ROC can be made at any time, such a payment may require the repayment of government grants.
What is an AIP?
An AIP is a payment of accumulated earnings in the RESP to a subscriber. Generally, AIPs are used when none of the beneficiaries of an RESP are or will be pursuing post-secondary education.
What conditions must be met to make an AIP withdrawal?
All of the following conditions must be met:
- The recipient is a resident of Canada
- The payment is made to, or on behalf of, a subscriber of the RESP and not jointly to, or on behalf of, more than one subscriber
- The payment is made after the ninth year following the year the plan was opened and all living current and former beneficiaries of the RESP have reached 21 years of age and are not currently eligible for EAPs
- The payment is made in the 35th year following the year the plan was opened
- Each individual who was a beneficiary has died
Is there tax on AIPs?
Yes. These payments are subject to two different taxes, the subscriber's regular income tax and an additional 20 per cent tax. There may be rollover options where the subscriber may roll up to $50,000 of AIPs to his/her own RRSP or a Spousal RRSP to the extent RRSP contribution room is available.
The additional 20 per cent tax does not apply in the event of a rollover.The subscriber is required to complete form T1171 (AIP RRSP rollover) or T1172 (AIP withdrawal) and submit a copy with the withdrawal form. These forms calculate the amount of tax paid and are filed along with a T4A that records the amount of income withdrawn. You can find these forms on the Canada Revenue Agency (CRA) website (www.cra-arc.gc.caOpens a new window in your browser.).
When must the plan be collapsed?
After an AIP has been completed, the plan must be completely collapsed by the last day of February of the following year. If the plan must be collapsed while income remains in the plan, and the plan does not qualify for an AIP, then the remaining income is donated to a designated educational institution chosen by the subscriber(s).
Your CIBC Wood Gundy Investment Advisor can help you evaluate the various options available for RESPs. To find out how we can help you, use our Find An AdvisorOpens a new window in your browser. to locate a CIBC Wood Gundy Investment Advisor near you.