What happens to unused RESP money?

Author: Sound Choices

August 9, 2018

Back to School series:
You have options if the beneficiary doesn’t pursue a post-secondary education.


The content in the below article is meant for Canadian investors only.


Myth: You lose all the money in an RESP if the child doesn’t go to post-secondary.

Reality… You have several options, including: 

1. Naming a new beneficiary. 2. Transferring it to your RRSP. 3. Getting your money back.  1. Naming a new beneficiary2. Transferring it to your RRSPGetting your money back*

Many Canadians fear they’ll lose all the money in their RESP if the child doesn’t to university or college. That is not the case.

In fact, if the beneficiary of the RESP does not immediately pursue a post-secondary education, the money invested can continue to grow tax-sheltered. An RESP can remain open for 35 years.

And if the beneficiary decides not to pursue a post-secondary education, the subscriber has several options, including:

#1: Name a new beneficiary

  • In a Family Plan, contributions, earnings and grants are shared by all beneficiaries. (For the differences between an individual and family RESP, read this.)
  • To keep the Canada Education Savings Grant (CESG), the new beneficiary must be under 21 years of age and be a brother or sister of the former beneficiary.

#2: Transfer assets to another eligible RESP

  • May be able to keep the government grants

#3: Transfer the accumulated income to an RRSP*

  • Up to $50,000 of earned income can be contributed into the subscriber’s regular or spousal RRSP – provided the subscriber/spouse has sufficient RRSP contribution room
  • Grants must be returned, but the growth is kept

#4: Withdraw the earnings with an Accumulated Income Payment*

  • If there are no other eligible alternative beneficiaries, the subscriber can also elect to receive the income earned on the money contributed to the RESP in the form of an Accumulated Income Payment (AIP)
  • Grants will be returned to the government when the first AIP is made, but growth is kept
  • AIPs are taxable income for the subscriber and are subject to income tax plus an additional 20% withholding tax (varies by province)
  • AIPs cannot be rolled into the beneficiary’s RRSP

#5: Transfer the earnings to a Registered Disability Savings Plan (RDSP)

  • Must have a beneficiary who is eligible for the Disability Tax Credit
  • Contributions must be made before the end of the year in which the beneficiary turns 59
  • The rollover is taxable at the time the disability assistance payment is made and cannot not cause total contributions to exceed $200,000
  • In addition, one of the following conditions must be met:
    • The beneficiary has a severe and prolonged mental impairment that can reasonably be expected to prevent him/her from pursuing post-secondary education or
    • The RESP account has been in existence for at least 10 years and the beneficiary is at least 21 years of age and is not pursuing post-secondary education or
    • The RESP has been in existence for more than 35 years

#6: Withdraw the contributions

  • The money that was contributed to the RESP over the lifetime of the plan may be withdrawn and returned to the subscriber.
  • All grant incentives received that remain within the account at the time of the withdrawal will be returned to the federal and/or provincial governments.
  • Contributions withdrawn are not subject to any additional tax.

#7: Donate the earnings to an educational institution

  • Some RESPs, such as AGF’s RESP, allows for the amount of earnings remaining in the RESP (i.e., whatever remains after eligible amounts have been transferred or converted) to be paid to a designated educational institution in Canada provided that:
    • The beneficiary is not eligible for an Education Assistance Payment (EAP)
    • Incentive(s) have been repaid, as required
    • The subscriber does not qualify for an AIP
  • All grant incentives received that remain within the account at the time of the withdrawal will be returned to the federal and/or provincial governments.
  • A payment to a Canadian designated educational institution would be a gift and not a donation so a tax receipt will not be issued to the subscriber or to the beneficiary

Talk to a financial advisor to learn how they can help you in this situation.


*The following conditions must be met .
– The RESP has been in existence for at least 10 years or the beneficiaries are deceased
– All current and former beneficiaries must be at least 21 years old
– All current and former beneficiaries are not pursuing post-secondary education
– The subscriber is a resident of Canada
The RESP account must be closed by the end of February of the following calendar year.
The contents of this Web site are provided for informational and educational purposes, and are not intended to provide specific individual advice including, without limitation, investment, financial, legal, accounting or tax. Please consult with your own professional advisor on your particular circumstances.
©2018 AGF Management Limited. All rights reserved. Visit https://perspectives.agf.com

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