RESP Redemption Advice
June 26th, 2008 | by Editor |Many financial advisors have had frustrated clients ask them for advice in redeeming RESP funds when they need them the most. Here are some tips from Certified Financial Planners in Canada.
Now that children are heading off to school, we have had many frustrated parents wanting money from the RESP they set up for their kids. The frustration stems from the fact that CRA (Canada Revenue Agency) rules don’t allow RESP redemptions unless the redemption request is received with proof of the student’s full-time enrollment. When asked, the school will generally provide this proof. Unfortunately for cash-strapped parents, you can’t get the letter until the child is enrolled and starts attending classes. But they can’t enroll or attend classes unless their tuition is paid. This “Catch-22″ finds many parents having to come up with tuition money, only to be reimbursed once the RESP funds are sent to them.
While these rules seem backwards to some people, they are in place so that the government can ensure that the money, which the government helped contribute, is being used for a student.
We’ve only seen one strategy to circumvent this “after-the-fact” means of getting the money, and it only works if the student attends for more than one year. With this solution, the parent simply withdraws a larger amount than necessary from the RESP after the child begins classes in their first year, then hangs onto the extra money until the next tuition payment is due in the following year. Of course, the downside to this is that the parent should keep those funds separate from their own finances, and in a secure place. This solution isn’t perfect, but neither is the RESP Canadian Education Savings Grant plan. At the end of the day though, it still means that CRA is kicking in some money to help pay the high cost of educating your kids, and that can’t be all bad!
Here is another reminder if you’re sending kids off to post-secondary education: if your child went to university or college in another city this past September, remember to save all receipts for moving expenses. Everything from moving van rental costs to meals could be allowed.
Related Articles: Methods of Saving for Education
2 Responses to “RESP Redemption Advice”
By Bev Dantzer on Oct 16, 2009 | Reply
Can my daugther use her RESPs only for the cost of her tuiton or books? Can she get more money to help her with school supplies and clothes? What are the limitations.
It is my understanding that she is the one who claims the amount withdrawn on her taxes -is this true?
Thanks for your help