There is plenty written about contributing to an RESP and capturing the grant. There is remarkably little about getting the money out, which is where avoidable mistakes actually cost families money.
Your child has an acceptance letter. Tuition is due. What now?
An RESP holds two different kinds of money
This is the concept everything else depends on. Inside the plan sit two distinct buckets, taxed completely differently.
Your contributions — the money you put in, on which you already paid tax. Withdrawn as a Post-Secondary Education (PSE) withdrawal. Comes out tax-free, to anyone, with no limit.
Grants and growth — the Canada Education Savings Grant, any provincial grants, and all investment earnings. Withdrawn as an Educational Assistance Payment (EAP). Taxable in the student's hands.
That second point is the good news, not the bad news. A student with modest earnings, the basic personal amount and tuition credits typically pays little or no tax on EAP money. The whole design assumes the income lands on a low-income student rather than a higher-earning parent.
The first-13-weeks limit
There is a cap on EAP withdrawals during the first 13 consecutive weeks of enrolment. Once those 13 weeks are complete, the restriction lifts and EAP can generally be withdrawn as needed, subject to the plan's rules.
This catches families out when the first tuition instalment is large. The workaround is straightforward: withdraw contributions (PSE), which have no limit, to cover the shortfall early on, then draw EAP once the 13 weeks have passed. Knowing this in advance avoids a scramble in September.
What you need to withdraw
Proof of enrolment from the institution — normally a letter or official document confirming the student is enrolled in a qualifying programme. Most providers have a specific form. Requirements differ between full-time and part-time enrolment, and part-time study has lower EAP limits.
Qualifying programmes are broader than many parents assume. University degrees obviously qualify, but so do college diplomas, many trade and apprenticeship programmes, and certain programmes abroad. If your child is heading somewhere unexpected, check before assuming the RESP cannot be used.
The order to withdraw in — and why it matters
Here is the counterintuitive part. Many parents instinctively take their own contributions out first, because that money is tax-free and feels safest.
That instinct can be expensive. If the student does not complete their education, or money is left in the plan at the end, unused grant money must be returned to the government, and the remaining growth faces significant tax treatment if withdrawn as an Accumulated Income Payment — regular income tax plus an additional 20% penalty tax.
So the general principle is to draw down the EAP money (grants and growth) while the student is enrolled and taxed lightly, and keep contributions as the flexible remainder — because contributions can always come back to you tax-free, whatever happens.
Use grants and growth first, while there is a student to attribute the income to. Contributions are yours regardless and carry no deadline or penalty. Reversing that order is the most common and most expensive RESP withdrawal mistake.
If your child doesn't pursue post-secondary education
Not the end of the world, and worth knowing before you panic.
Wait. RESPs can generally stay open for decades. Plenty of eighteen-year-olds who were adamant they were not going to school enrol at twenty-two.
Transfer to a sibling. A family plan makes this simple; individual plans can often transfer subject to conditions. Grants can frequently move too, within limits.
Move growth to your RRSP. If you have contribution room and the plan meets the conditions, accumulated income can be transferred to an RRSP up to a limit, avoiding the penalty tax. This usually requires the plan to have been open a minimum number of years and the beneficiary to be over a certain age.
Withdraw as an AIP. The last resort. Grants go back to the government, your contributions return tax-free, and the growth is taxed as income plus 20%.
Two things worth doing early
First, shift the investments before you need the money. An RESP heavily invested in equities the year tuition is due is exposed to exactly the wrong risk at the wrong time. Most families should be de-risking through the final years of high school.
Second, talk to your child about the tax. EAP money is income on their return. If they are also working, and particularly if they have a good co-op placement, the combination can produce a small tax bill they did not expect. Better discussed in advance than discovered in April.
If you are approaching the withdrawal stage and want the sequencing planned properly against your family's actual numbers, that is a conversation worth having before the first tuition bill rather than after.