Written by: Kaleido
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Odds are offering your child a good education is a priority. Even if this seems far off into the future, you hope that your child will pursue a post-secondary education when the time comes. It's only natural, and that's why you've invested in a registered education savings plan (RESP) since he was a baby. It is, however, possible that your child will decline a post-secondary education. What will happen to all the money invested in the RESP you opened?
First of all, it's important to know that an RESP has a 35-year lifespan starting the day it takes effect. So even if your teenager decides to take a year off after high school to explore the world or reflect on some serious life choices, don't panic, you've got plenty of time. Children are still entitled to payments from an RESP when they undertake a post-secondary education after a year of travel or self-discovery. We therefore recommend that you be patient before you cash in the RESP funds.
If your child is resolute in his decision not to pursue a post-secondary education, you can transfer his RESP to another beneficiary. To transfer all the funds in the RESP to another child, the latter must be younger than 21 years* (under the REFLEX Plan, and younger than 16 years under the UNIVERSITAS Plan) and be the initial beneficiary's sibling (brother of sister). Other conditions may apply to comply with tax rules regarding the grants offered by the federal and Quebec governments. It is recommended that you call your scholarship plan representative or financial advisor to obtain all the necessary information before beginning this process.
Rather than close your RESP account and pay taxes on the investment income in your plan, you can choose to transfer the accumulated income in your RESP to your RRSP, up to $50,000. Of course, you must ensure that the amount transferred does not exceed your RRSP deduction limit. Let us also specify that any incentive amounts received from the federal or Quebec governments will have to be reimbursed to the latter.
For the transfer of an RESP to RRSP to be admissible, certain conditions must be satisfied, for example:
If you chose not to transfer the RESP funds to another beneficiary or to your RRSP, here are a few factors to consider:
Canadian Bankers Association
Canada's Education Savings and Student Financial Aid Resource
Government of Quebec
*According to the chosen plan.