After several years of investing in your Registered Education Savings Plan (RESP), your young person is ready to begin their post-secondary education.
Now is the time for disbursements, and it’s best to plan ahead to make the most of the returns on your investment.1
If you’re not sure where to start, here are three essential disbursement strategies to consider, according to Jean-Stéphane Parent, Vice-President and Chief Investment Officer at Kaleido.
First of all, it’s best to adjust withdrawals according to your child’s actual educational needs. The further they plan to take their education, the more expensive it is likely to be, both in terms of tuition fees and the cost of living in general. Housing, travel and other living expenses also need to be taken into account if your young person is thinking of leaving home. “Plan gradual withdrawals to cover their needs throughout their studies,” recommends Jean-Stéphane Parent.
Secondly, it’s often more advantageous to begin the disbursement process by withdrawing grants and returns, commonly referred to as “Education Assistance Payments” (EAPs), to let the capital (your contributions) do the work. As long as they remain in the plan, your contributions are tax-sheltered and continue to generate income.
Finally, you need to take into account your young person’s tax situation, since EAP disbursements are taxable for the student. So, if they earn employment income, calculate RESP withdrawals carefully to avoid owing too much tax at tax time. Withdrawals that include a portion of taxable EAPs and non-taxable contributions may be worth considering.
Don’t hesitate to contact your Kaleido education savings advisor to optimize your disbursement. You will be able to discuss a personalized strategy, based on the status of your RESP and your young person’s post-secondary plans.
1. See eligible post-secondary programs in our prospectus. Certain conditions apply. Maximum withdrawal allowed under the Income Tax Act.