Planning ahead for your child’s education expenses can be exciting and daunting. There are many different approaches to paying for their secondary schooling, and beginning your plan of action early on can make a big difference in the efficiency of your payments. One option that many families take advantage of are RESPs (Registered Education Savings Plans), which allow you to make contributions on behalf of your children, earn tax-deferred income, and gain access to government grant funding.

While RESPs certainly have their advantages, when it is time to begin making withdrawals, things can become complicated. At BlueRock Wealth Management, we know that saving for and maintaining your child’s education funds can be tricky, so we’ve provided a few basic tips when it comes to RESP withdrawals to help you ensure that you avoid pitfalls and enjoy the solutions these accounts may provide.

Tip #1: You Can Choose Separate or Combined RESP Accounts

For many adults working to maintain their child’s education income over their course of study, RESP accounts certainly come in handy. Not only can you contribute to separate accounts equally for each of your children, but you can also choose to have combined RESP accounts, making it easier to acquire a lump sum for educational purposes.

However, when it comes to RESP withdrawals and requesting an EAP (Educational Assistance Payment), it is important to note that you must only supply each of your children with $7,200 worth of grant money – and the amount of grant money included in your payment is automatically calculated. So, whether you choose separate RESPs or a combined RESP option, keeping track of how much grant money your child has received is important.

Tip #2: There are Pros and Cons for Separate AND Combined RESPs

The biggest looming factor with RESPs is that you can only withdraw a maximum of $7,200 per beneficiary. While it may be easier to keep track with separate RESP accounts, if you have more than one child and/or a combined RESP account, an overdraw of grant funding could lead to a loss of the available grant money altogether.

A common pitfall of RESP withdrawals is not keeping track and suddenly finding yourself overdrawn or having disproportionately withdrawn for one beneficiary over the other. When this happens, it is important to consult with your financial institution to see if the situation can be rectified. In fact, before your first (or next) RESP withdrawal, you can always ask to see where your grant money balance lies before determining how much to take out.

If you have chosen a combined RESP account, creating a strategy before requesting an EAP is the best way to ensure your educational funding will remain on track. Your financial institution can work with you to ensure that you and your children enjoy the benefits of these accounts with a little pre-planning.

Tip #3: Create a Strategy to Avoid Overpaying

So, you may be wondering how you can avoid overpaying your beneficiaries without too much headache. Here are a few important considerations:

  • The next time you request an EAP, make sure to ask how much grant money has been paid so far and how much grant money will be included in your next withdrawal.
  • Ask your financial institution if you will go over the allotted $7,200 with your next withdrawal if you aren’t sure.
  • Additionally, if you would like to use all of the available grant money, you can ask your financial institution to calculate your next RESP withdrawal for you.
  • Once your grant money has been fully utilized, your contributed earnings are still available for withdrawal from your RESP account.

As always, if you have questions about RESP accounts and how to best utilize them for your child’s education, our team at BlueRock Wealth Management is ready to assist you. Please contact us today for more information about securing your financial future.

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