My three children have chosen different educational paths. How can I withdraw RESP funds fairly and avoid unnecessary taxes?

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    The typical RESP exit strategy is to take the maximum amount from the EAP in the first 13 weeks at the start of post-secondary education, as the children usually have the lowest income this year and therefore a payout makes sense most at this point . You should look at the child’s taxable income and then estimate how much should come from the taxable and non-taxable portions of the RESP. On this basis, you can then decide whether to draw the remaining EAP or spread it over the remaining years. You should also consider withdrawing the entire EAP before entering the final spring semester. This is the year a student could potentially have the highest tax rate as they could graduate in the spring and potentially embark on a full-time career shortly afterwards.

    This is usually how a withdrawal strategy works. To get back to your particular situation, remember that after 13 weeks you can get as much as you want from an RESP – it is not tied to school fees. Also, when the grant is maximized, it only needs to go to a specific beneficiary. This gives you the option to schedule your EAP withdrawals. If the grant has not been maximized, you can also benefit from the different tax rates for each of your children.

    For example, if two of your children couldn’t find work in the past summer of the pandemic, it may make sense to pull a larger amount than usual from their taxable EAP, even if they don’t need the money. If there is additional money it can be added to their TFSA or your TFSA. If the money is needed by one of your children, it can be distributed where it is needed.

    If you haven’t maximized the grant for each child, you can split the grant among your children. More of the EAP could go to the child with the lowest tax rate. Remember that the maximum scholarship any child can receive is $ 7,200.

    After all, you’ll want to withdraw all of the RESP money when your children have completed their post-secondary education. If you don’t and there is still money left in the RESP, you can withdraw all of the original capital tax-free, while any remaining EAP is taxed at your marginal tax rate plus an additional 20%. If you have an RRSP contribution area, you can transfer the EAP to your RRSP and claim a deduction.

    If you are in a situation where you have maximized your RRSPs and there is money left in an RESP, it may make sense to postpone the payout until the RESP needs to close in the 36th year after it opened.

    While the money is in the RESP, growth is tax-privileged. In the coming years, one of your children may return to high school and you may find yourself in a lower tax bracket.

    So yes, there is a minimum EAP that you should pull, but make sure you get the grant. Even if it’s taxed, you and your son will still come out on top.

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