How to rob it

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  By Guest Blogger Sinan Terzioglu

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Every August, as students prepare to begin post-secondary studies, I start receiving a steady stream of RESP questions and withdrawal requests.

After years of contributions, grants, and investment growth, many families eventually face an important question: what’s the best way to withdraw money from an RESP? While plenty of attention is paid to building the plan, the withdrawal strategy is often overlooked.

In my experience, that’s where some of the biggest RESP planning opportunities lie. A well-thought-out withdrawal strategy can reduce taxes, ensure grants and investment growth are fully utilized, and help avoid leaving money stranded in the plan after graduation.

Let’s start with a quick overview of how RESPs work before looking at the withdrawal strategy I generally recommend.

RESP Basics

An RESP allows you to contribute up to $50,000 per child over their lifetime.

Unlike RRSP contributions, RESP contributions are not tax-deductible. Instead, the benefits come from government grants and years of tax-deferred investment growth.

The Canada Education Savings Grant (CESG) provides a 20% match on contributions, up to $500 per year per child for a lifetime maximum of $7,200. To receive the full lifetime grant, a family needs to contribute at least $2,500 per year for roughly 14½ years. Grants are payable until the end of the year a beneficiary turns 17.

If you miss a year, the government allows you to catch up one year at a time by contributing up to $5,000 in a future year and receiving up to $1,000 of CESG. This allows families who started late to gradually recover missed grants.

By the time a child begins post-secondary education, a well-funded RESP will contain:

* Original contributions
* Government grants
* Years of accumulated interest, dividends, and capital gains

When money is withdrawn from an RESP, it generally falls into one of two categories during a child’s education:

Post-Secondary Education Withdrawals (PSE)

PSEs represent the original contributions made to an RESP. While contributions can generally be withdrawn at any time, once a beneficiary is enrolled in a qualifying post-secondary program, they can typically be withdrawn as a PSE on a tax-free basis.

Educational Assistance Payments (EAP)

EAPs consist of the government grants and investment growth accumulated within the RESP over the years. Unlike PSE withdrawals, EAP withdrawals are taxable. The good news is that the income is reported on the student’s tax return, not the subscribers. Because most students have little or no income while attending school, they can often withdraw substantial amounts of EAPs and pay little, if any, tax.

Understanding the difference between PSE and EAP withdrawals is important because many of the most common RESP traps stem from withdrawing the wrong type of money at the wrong time.

Don’t Leave the EAPs Until the End

Some parents choose to withdraw contributions first because they’re tax free. The problem is that this can leave grants and investment growth behind in the RESP. If those amounts aren’t withdrawn as Educational Assistance Payments (EAPs) while the student is enrolled and paying little or no tax, the family may face a larger tax bill than necessary in the future.

Make the Most of the Student’s Low Tax Bracket

One of the biggest RESP planning opportunities is taking advantage of the student’s low tax bracket. In 2026, the federal Basic Personal Amount is approximately $16,452, and many students will also have tuition tax credits available. The combination often means they can withdraw a substantial amount of RESP grants and investment growth (EAPs) while paying little or no tax.

It’s also important to remember that EAPs don’t need to be used exclusively for tuition and textbooks. If the student is enrolled in a qualifying post-secondary program, RESP funds can generally be used to help cover a wide range of education-related expenses, including rent, groceries, transportation, and other costs associated with attending school. The key is ensuring the withdrawals remain reasonable in relation to the student’s educational needs.

Understand the First-Year EAP Limits

This rule catches a lot of parents by surprise. They’ve done everything right, their child starts university, and then they discover they can’t immediately withdraw all the grants and investment growth they were expecting.

For students enrolled full-time, the maximum EAP during the first 13 consecutive weeks of enrollment is $8,000. For part-time students, the limit is $4,000 during each 13-week enrollment period. Once the initial 13 weeks have passed, there is generally no limit on EAP withdrawals for full-time students who remain enrolled in a qualifying program.

For students with a large EAP balance, I generally recommend withdrawing the initial $8,000 EAP and, if possible, waiting until the first 13 weeks have passed before making additional withdrawals.

For example, if a student needs $15,000 for their first semester and the family has the flexibility to do so, they could withdraw the initial $8,000 EAP and temporarily cover the remaining $7,000 from savings or a TFSA. Once the first 13 weeks have passed, they could withdraw another $7,000 EAP and reimburse themselves. This approach helps maximize the amount of grants and investment growth that can be taxed in the student’s hands.

Beware of Excess Growth Left in the Plan

Another common trap occurs when money remains in the RESP after a beneficiary finishes school or decides not to pursue post-secondary education.

Fortunately, this situation isn’t common, but I’ve seen it happen when a beneficiary leaves school early, changes plans, or simply doesn’t need all the RESP funds that have accumulated over the years.

While the original contributions can be withdrawn tax-free, any remaining investment growth may be paid to the subscriber as an Accumulated Income Payment (AIP), and unused government grants must be repaid.

The tax consequences can be significant. AIPs are fully taxable as ordinary income and are subject to an additional 20% tax, which can result in a substantial portion of the withdrawal being lost to tax for higher-income families.

Fortunately, if you have available RRSP contribution room, up to $50,000 of AIP income can generally be rolled into an RRSP, allowing you to defer tax and avoid the additional 20% penalty tax. For families who expect excess growth to remain in their RESP, it’s worth planning and ensuring sufficient RRSP contribution room is available to take advantage of this strategy if needed.

The Bottom Line

After years of contributions, government grants, and investment growth, it’s worth giving some thought to your RESP withdrawal strategy. In many cases, a few well-thought-out decisions can save thousands of dollars in tax and help families get more value from their RESP. The key is to start planning withdrawals before the money is needed rather than after. Doing so can help reduce taxes, avoid common pitfalls, and keep more of the savings in your family’s hands.

Sinan Terzioglu, CFA, CIM, is a financial advisor with Turner Investments, Private Client Group, Raymond James Ltd.  He served as vice-president of RBC Capital markets in New York City and VP with Credit Suisse in Toronto.

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Source: https://www.greaterfool.ca/2026/08/30/how-to-rob-it/