Making the Most of RESP Withdrawals: A Guide for Parents
As summer winds down, many Canadian families are preparing their children for post-secondary education. For parents like Lisa and Jason, both 50 years old and living in Red Deer, Alberta, this means more than just shopping for residence supplies. It also means figuring out how best to withdraw from the Registered Education Savings Plan (RESP) they’ve been contributing to for 18 years for their son, Ethan.
Ethan just turned 18 this past spring and is heading off this fall to pursue a four-year undergraduate degree at the University of Alberta in Edmonton. Because the family lives too far away, Ethan will be living in a university residence. Now that the savings part is done, Lisa and Jason are wondering: How do we withdraw RESP funds smartly and efficiently?
We’ve Saved… Now What?
Lisa and Jason have about $90,000 in Ethan’s RESP, including $50,000 in contributions, $7,200 in Canada Education Savings Grant (CESG) money, and $32,800 in investment growth. But they soon discover that RESP withdrawals aren’t automatic. They need to formally request funds from their RESP provider, and they have to provide proof that Ethan is legitimately enrolled in a qualifying program.
Ethan is going into a full-time program at a recognized university in Canada that is greater than 13 weeks, so on those details, he is eligible. However, there needs to be proof that he is actually enrolled in a qualifying program. A letter from the university stating that Ethan has been accepted or admitted isn’t enough. Acceptable documents are usually a letter of enrolment or confirmation of registration from the university registrar’s office. The letter or confirmation must provide:
- The student’s full name
- The name of the post-secondary institution, usually shown by the letter or confirmation being printed on official letterhead
- Term start and end dates
- Enrolment status (full-time or part-time)
- The program name and year
This information will be submitted with the withdrawal request submitted for Ethan.
The next big decisions to be made are the type and amount of the withdrawal.
When a student is enrolled, the two basic types are:
- EAPs (Educational Assistance Payments) – grants and investment earnings that are taxable in Ethan’s hands, and
- PSE withdrawals (Post-Secondary Education withdrawals) – the contributions made by Lisa and Jason, which are not taxable.
Why is there a distinction between the two? Unlike a Registered Retirement Savings Plan (RRSP), contributions to an RESP do not result in a tax deduction. For that reason, they can be returned to Lisa and Jason, or passed on to Ethan, without tax implications.
However, grants and investment growth are tax-sheltered until withdrawn, so it is reasonable that tax be applied. The good news is that EAPs are taxed in the student’s hands. Even though the EAP will appear on a T4A slip issued in Ethan’s name, it is unlikely to result in more than minimal tax, if any, because few full-time students earning enough income to pay tax, especially after using the federal Tuition Tax Credit as documented on form T2202, the Tuition and Enrolment Certificate, issued by the university. In fact, it is often the case that the student is unable to make full use of the credit in the current year, so Ethan will likely transfer up to $5,000 of the unused portion to one of his parents to claim.
So, should they choose to prioritize the EAP or the PSE? In principle, the EAP is the better choice. Why?
A Surprise Tax Bill? Unused Grants?
Lisa and Jason learned that prioritizing EAP (Educational Assistance Payment) withdrawals over PSE (Post-Secondary Education capital) withdrawals makes good financial sense. EAPs consist of taxable government grants and investment income that are only available while the student is enrolled in post-secondary education. If some of these funds remain unused by the time Ethan finishes, or if he leaves school before completing his program, any unused grant money must be returned to the government. The investment earnings portion cannot be accessed unless the student qualifies for an EAP; otherwise, it may become taxable to the subscriber at their marginal rate and subject to an additional 20% penalty tax.
Fortunately, because Ethan, like many full-time students, will likely have little or no taxable income, EAP withdrawals can often be used tax-free or at very low tax cost.
By contrast, PSE withdrawals involve only the original contributions made by the subscriber. These are not taxable and can be accessed at any time while the student is enrolled. If the student is no longer enrolled, contributions can still be withdrawn, but they are then classified as Non-Educational Capital Withdrawals (NCWs). NCWs are also non-taxable, but they typically trigger the repayment of unused government grants. For this reason, it’s generally more strategic to withdraw EAPs first while the student qualifies and reserve the non-taxable contribution portion for later if needed.
The Rules on How Much You Can Withdraw
First 13 Weeks of Full-Time Study
Since Ethan is starting full-time studies in September, Lisa and Jason can request up to $8,000 in EAPs for the first 13 consecutive weeks, as long as he’s enrolled in a qualifying program.
It’s possible, perhaps even likely, that $8,000 will not be enough to cover Ethan’s first semester expenses. In that case, his parents may need to withdraw the required balance using a PSE withdrawal. In the new year, however, assuming Ethan continues his studies, Lisa and Jason could make further withdrawals from the EAP portion.
One exception to keep in mind is if Ethan takes a break from school for 12 months or more. Then the $8,000 limit would reset upon re-enrolment.
If He Goes Part-Time (in Later Years)
Should Ethan ever reduce his course load to less than 10 hours of instruction per week, the EAP limit would fall to $4,000 per 13-week period.
Unlike full-time students, where the $8,000 limit applies only to the first 13 consecutive weeks of enrollment, part-time students are always subject to the $4,000-per-13-weeks cap, regardless of how long they remain enrolled. There is no phase where the EAP becomes unlimited for part-time studies.
Annual EAP Threshold
CRA does not set a hard limit, but EAP withdrawals must reflect reasonable education-related expenses. As of 2025, the administrative threshold is $28,881/year. Withdrawals above that amount may be flagged by the RESP promoter (i.e., the financial institution) and require supporting documentation. A helpful page for reasonable versus unreasonable expenses can be found here.
A Smarter Way to Withdraw
Letter of enrolment in hand, Lisa and Jason decide to maximize Ethan’s $8,000 EAP now. They target $22,500 for Ethan’s first year, so they decide that for the first semester, they will withdraw a total of $11,250, of which $3,250 will come from a PSE withdrawal. In the new year, they will submit another request for the remaining $11,250, entirely from EAP assets.
Based on their projections, Jason and Lisa estimate that they will almost certainly exhaust the EAP assets by the end of Ethan’s second year. However, thanks to expected growth, a small amount of new EAP-eligible income may be available in his third and fourth years. That means the bulk of the remaining costs will be covered by PSE withdrawals, which suits them just fine.
A Withdrawal Plan That Works
Lisa and Jason feel relieved. Their careful RESP planning is paying off, not just in savings but in withdrawal strategy. Ethan can focus on getting settled at school and building his future in Edmonton without worrying about his finances. And with the right planning, they’ll avoid tax issues, maximize grant use, and keep things running smoothly for the next four years.
RESP Withdrawal Checklist
- Proof of enrolment in a qualifying institution
- Withdraw up to $8,000 in EAP for the first 13 weeks
- Plan for EAPs totaling less than $28,881/year (as of 2025)
- Track eligible expenses: tuition, books, residence, meals, etc.
- Use PSE withdrawals for tax-free cash flow needs
This is the 297th blog post for Russ Writes, first published on 2025-07-28.
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Disclaimer: This blog post is intended for general information and discussion purposes only. It should not be relied upon for investment, insurance, tax, or legal decisions.