With my oldest child turning 11 this year, my mindset and strategy for our family RESP is starting to shift from accumulation and growth to a more balanced portfolio.

This has many similarities to retirement planning but on a smaller scale. In your younger years, there is a focus on growth, but as retirement approaches, a shift from offense to a more balanced approach typically occurs.

In both scenarios, you want to get the most out of your portfolios to pay for stuff, which usually means withdrawing from those portfolios in a tax-efficient manner.

Here is a brief outline of how RESPs work:

  • Deposits are made with after-tax dollars (ie. not tax-deductible);
  • The federal government provides 20% match funding for your deposits called the Canada Education Savings Grant (CESG);
  • The maximum free money (CESG) per year is $500, which means that a $2,500 contribution would result in a total of $3,000 added to the RESP.  The maximum lifetime CESG is $7,200, which will get maxed out after approx 14.4 years of contributing $2,500/year.
  • If you are a little late getting started, here is how to catch up on your RESP contributions.
  • When it comes time to withdraw, portfolio growth and CESG withdrawals are taxable but reported under the student’s income tax.  So the withdrawals will likely face low taxation.

A Deeper Dive into RESP Withdrawals

You can choose how the money withdrawn from an RESP is categorized.  To elaborate:

  • A withdrawal of CESG and investment growth from an RESP is considered an Educational Assistance Payment (EAP). EAPs are taxable to the student.
  • A withdrawal of RESP contributions is called a Post-Secondary Education Payment (PSE).  PSEs are not taxable and can go to either the subscriber (ie. parents/grandparents) or the student.
  • A maximum of $5,000 EAP withdrawal during the first semester of schooling (13 weeks).  After that, there is no maximum EAP (up to the amount in the RESP).  PSE can be withdrawn at any time.

Tax Efficient RESP Withdrawals

As you can see from above, some withdrawals are taxable while others are not.  With any withdrawals that are taxable (ie. EAP), a T4A will be provided to the student.

With the basic personal amount of $10.5k in Ontario, this means that an Ontario student can earn up to $10.5k annually without paying any income tax.

You’ll need to determine other income the student has, but it’s likely wise to withdraw the full $5k EAP in the first semester.  After the first semester, you can work out the withdrawals to stay under the basic personal amount.

The secret is to get the EAP out of the account while the student is attending post-secondary.  Note that the PSE can be withdrawn tax-free and without penalty.

An Example 

In my 2019 RESP update, the balance of my 11 year old’s RESP was around $49k.  Let’s fast forward to University age, and assume that the portfolio grows to $80k.

The $80k RESP balance would be made up of:

  • PSE: $36,000
  • EAP (CESG: $7,200 Growth: $36,800): $44,000

Inspired by Retire Happy, I created a chart summarizing the RESP withdrawal plan.

Year Tuition Room/Board Part-Time Income EAP PSE
1 $20,000.00 $0.00 $10,000.00 $10,000.00
2 $20,000.00 $0.00 $10,000.00 $10,000.00
3 $20,000.00 $0.00 $12,000.00 $8,000.00
4 $20,000.00 $0.00 $12,000.00 $8,000.00
Total: $80,000.00 $0.00 $44,000.00 $36,000.00

This example assumes that the student doesn’t work part-time and it shows a tax-efficient way to get the EAP money out of the account over 4 years.

In another scenario where the child decides to attend a local university and live at home, the student would have some extra money to spend while paying little or no tax.  The best part? We would get our contributions back!

Year Tuition Room/Board Part Time Income EAP PSE
1 $7,000.00 $0.00 $12,000.00 $0.00
2 $7,000.00 $0.00 $12,000.00 $0.00
3 $7,000.00 $0.00 $10,000.00 $0.00
4 $7,000.00 $0.00 $10,000.00 $0.00
Total: $28,000.00 $0.00 $44,000.00 $0.00

Final Thoughts

To summarize, RESP withdrawals are separated into two components – the EAP (CESG and investment growth) and the PSE (contributions). 

The EAP is the taxable stuff that can face a penalty if not used up.  To maximize RESP withdrawals,  strategize to use up the EAP while staying in a low tax bracket (or under the basic personal amount) before dipping into the PSE.

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In the second example, do you have to pay a penalty for EAP that is not used to pay tuition/board? You withdraw $12K in EAP but only have $7K in tuition, so what happens to the EAP not used for education?

Hi Simon,

After proof of enrollment, my understanding is that you do not need to “prove” expenses. For example, the RESP can be used for room/board if the student goes away for University.

My eldest is 14, so we’re even closer to withdrawing funds from our RESP. Perfect timing to start figuring out our withdrawal strategy!

Thanks for yet another useful article!

Great post. Had no idea this was a thing. Quick question, does it matter how/where you hold the investment? Example, can I hold the full amount in a ETF (VGRO) for example and claim certain withdrawals as either PSE or EAP ?

You will need to sell enough of your investments to withdraw. So no, it doesn’t matter which investments you hold.

Another consideration: Don’t withdraw a penny of your RESP, until you apply for Student Loans first. With the student loan application you may well get free money (grants) which can total into the many thousands of dollars. Pay the loan with RESP money.

How do we find out what portion of our RESP balance is EAP and how much is PSE?

MxH, contact whoever you have your RESP with and tell them you’d like a break down of your contributions, grants, and income to date.

I had the same question until I found a post elsewhere that said the bank or investment company has to track said information and provide it upon request. So in my case I contacted RBCDI and they had what I wanted within a few days.

I’m a little ways away (our oldest is 2, haha!) but never too early to plan ahead and think about the RESP withdrawal strategy! Thanks for a great analytical post as always!

My eldest is in 2nd year university, and my next is finishing grade 12, so we’re doing the university open house tours this fall. Fun! It can be a bit complicated to get your head around tax efficient RESP withdrawals, because as a parent you naturally think in terms of school years (Sept-Apr; or to Aug if there’s a summer term). But the govt. taxes based on the calendar year (Jan-Dec). Also, winter tuition is due around November, so you have to withdraw in the fall for that. And further complicating the situation is if your child is considering a co-op program. One program my son and I looked at recently includes an 8-month paid co-op placement in 3rd year from May-Dec. So we’ll try to plan ahead with taxable EAP withdrawals in the years he has lower earnings, and more PSE withdrawals that year. Tax-efficient RESP withdrawals are a complicated topic, for sure!

I have ran our kids RESP for the last year when I transferred from the bank. Done fairly well with about 29 % in the year. I have it in 5 stocks:
1) AQN 40 % (bought really low and consider this my growth stock with a 40 % ROE over the last 2 years)
2) BCE 37.5%
3) BIN.UN 13.5%
4) T 9 %

I bought this way to provide stability to the fund through telecom(s) and utilities (and again AQN as my growth stock). Now I’m looking to add 2 or 3 more to the fund — financial/consumer cyclical/tech. I have about 11 years for my one kid and another 16 for my other kid. I don’t want ETFs or bonds yet — i’ll start converting over when they are in their teens.

Any advice ?