How To Make EAP Withdrawals From An RESP
When you're ready to begin making withdrawals from a Registered Education Savings Plan (RESP), it's important that you meet the payment conditions of the plan. These FAQs will help you ensure that your loved one's dream of higher education becomes a reality.
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 EAP?
An EAP is a distribution from the RESP to finance the cost of the beneficiary's post-secondary education. The distribution is made from the RESP's accumulated income and government grants such as Canada Education Savings Grants (CESGs).
Is There A Limit On EAPs?
For RESPs opened after 1998, the maximum amount in EAPs that can be made by one RESP promoter full-time student as soon as he/she qualifies to receive them is $5,000. After the student has completed 13 consecutive weeks in the qualifying educational program, there is no limit on the amount of EAPs that can be paid if the student continues to qualify to receive them. If there is a 12-month period in which the student is not enrolled in a qualifying educational program for 13 consecutive weeks, the $5,000 maximum applies again. If the beneficiary requires more than this amount, the client may make a written request to Human Resources and Skills Development (HRSD) providing proof of the additional costs to the beneficiary. Part-time students will be allowed to access up to $2,500 of their income and grants for each 13 week semester. Students will be required at least 12 hours a month on courses, in a course lasting at least three consecutive weeks.
Are EAPs Taxable?
When making a withdrawal from an RESP, the total equity of the plan is divided into three categories:
- Capital: The total amount of all contributions made to the plan since its inception. Capital, when withdrawn, is neither taxable to the subscriber nor to the beneficiary, for all types of withdrawals.
- Government grants: Government grants received by the RESP are tracked separately between CESGs, Canada Learning Bonds and if applicable, Alberta grants. Government grants must be withdrawn directly to the beneficiary or may be otherwise refunded to the appropriate government authority. This is considered taxable income to the beneficiary for the year in which it is withdrawn as an EAP.
- Accumulated earnings: After accounting for government grants and capital, any remaining amount in an RESP is considered accumulated earnings. Accumulated earnings are taxable to the beneficiary for the year in which it is withdrawn as an EAP.
How Is A Withdrawal Made From An EAP?
Withdrawals are composed of government grants and accumulated earnings categories only. After you determine the total amount of the EAP that you wish to withdraw, a prescribed formula, established and regulated by HRSD, is used to determine the grant and accumulated earnings portions that make up the EAP.
Proof of enrolment in a qualifying post-secondary program and a completed RESP withdrawal form provided by the RESP promoter are required before an EAP can be made. Proof of enrolment usually consists of two parts: A letter of admission/enrolment and a tuition invoice or proof of educational expenses. The proof of enrolment must accompany a completed RESP withdrawal form, authorized by the RESP subscriber/beneficiary as necessary.
The RESP promoter issues a T4A to the beneficiary for the total amount of grant and income withdrawn within any given year.
What is a ROC?
An ROC is the return of all, or part of, the original contributions made to the plan. Although an ROC is not subject to tax, a refund of "assisted" contributions will trigger a repayment of CESGs to HRSD if none of the plan's beneficiaries are eligible to receive an EAP. Assisted contributions are those that attracted CESGs when the contributions were made. Assisted contributions are considered withdrawn first before unassisted contributions. You may choose to direct an ROC to yourself, or to a beneficiary, for any use and it is not restricted to educational purposes.All these considerations can seem overwhelming.
Your CIBC Wood Gundy Investment Advisor can offer you expertise to find the solutions that are right for you. To find out how we can help you, use our Find An AdvisorOpens a new window in your browser. tool to locate a CIBC Wood Gundy Investment Advisor near you.