What to do with unused RESP money?

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A Registered Education Savings Plan (RESP) is a contract between the subscriber (an individual) and the promoter (a person or organization). It is basically a type of investment done by the parents to save for the future post-secondary education of the child.

But many parents fear that they will lose all their RESP money if the beneficiary (the child) does not attend university or college. But there is nothing to worry. If the beneficiary does not pursue post-secondary education, the invested money can grow tax-sheltered. In-fact an RESP can remain open for 35 years.

There are several more options that the subscribers can opt for if the beneficiaries do not go for post-secondary education:

  • The contributions, grants and earnings in a family plan are shared by all beneficiaries. It is also necessary that a new beneficiary should be under 21 years of age and be a brother or sister of the former beneficiary.
  • There is also a provision to transfer assets to another eligible and active RESP.
  • The accumulated income can also be transferred to an RRSP (Registered Retirement Savings Plan). An earned income of $50,000 can be contributed into the parent’s regular or spousal RRSP provided that there is enough contribution room. The grants must be returned, but the growth is kept.
  • If there are no other alternative beneficiaries, then the subscriber can also choose to receive the income earned on the RESP money in the form of an Accumulated Income Payment (AIP). Here also, the grants must be returned to the government when the first AIP is made.
  • The earnings can also be transferred to a Registered Disability Savings Plan. To do this, one must have a beneficiary who is eligible for the Disability Tax Credit and the contributions must be made before the end of the year in which the beneficiary turns 59. Moreover, one of the following conditions must be met:
  1. The beneficiary has a severe and elongated mental deficiency that can prevent him/her from attending post-secondary education.
  2. The RESP account was active for 10 years and the beneficiary is not pursuing post-secondary education and is 21 years old.
  3. The account has been active for more than 35 years.
  • The money contributed to the RESP account over a lifetime can also be withdrawn and returned to the subscriber and all the grants received that remain within the account at the time of withdrawal must be returned to the provincial governments. Moreover, the contributions withdrawn are not subject to any additional tax.
  • The subscriber can also donate the money to an educational institute. There are some RESP’s such as AFG’s RESP allows the RESP amount to be paid to a renowned educational institute in Canada.
  • All the grant incentives received at the time of withdrawal will be returned to the federal and/or the bucolic government.

This payment to a Canadian designated education institute would be considered as a gift and not a donation. Therefore, no tax receipt will be issued to the subscriber or to the beneficiary.

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