Many Canadian parents diligently put money aside every month for the kids’ post-secondary education. But what happens to that cash if those young ones later decide not to go to university?
It’s a question Robert Armstrong, vice president and head ofmanaged solutions at BMO Global Asset Management in Toronto, hears all thetime.
“The number one concern I get with all our clients is ‘Ifour children don’t pursue post-secondary education, do we lose our money?’
“That’s one of the key reasons why some people are hesitant to open an RESP,” he adds. “Who knows what your child’s going to do in 18 years? That scares a lot of people.”
Rest assured, parental units: You do not lose that money.
“Whatever you put into your RESP you get back, no question, no tax, no issues whatsoever,” Armstrong says.
But, keep in mind that whatever money the government kicked in through the Canada Education Savings Grant (CESG) or the Canada Learning Bond goes back to its rightful owner.
But an added bonus is that any returns or interest earned on investments within the RESP are yours to keep, even if you qualified for the CESG and some of that interest was earned using the government’s funds.
You have two options once you close an RESP account (more on that later): roll the money over into your RRSPs (highly recommended, assuming you have contribution room) or close it, which will come with financial implications.
If you close the account and withdraw the earnings as cash — growth known as accumulated income that was tax-sheltered within the RESP — that money will be taxed, plus you’ll pay a 20 per cent penalty.
To be eligible to transfer the funds to your RRSP, the RESP must have been open for at least 10 years; the beneficiary must be at least 21 and not currently seeking post-secondary education; and you must be a Canadian resident.
But hold on. Before you decide to close an RESP, there are a few other factors to consider.
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