The 3 most important things parents need to do before withdrawing their RESPs

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You’ve spent the past 17 years dreaming of this day. All those years of hauling your kids to school, packing lunches and then checking homework assignments are finally over. You’ve painstakingly visited college and university campuses, watched your child anxiously sort through mail until they received the acceptance letter from their post-secondary school of choice and helped them send their acceptance letter. Now you’re planning for your child’s graduation day, and perhaps even planning that last family summer vacation before your now not-so-little one heads off to – gasp – college!

And then it dawns on you: you finally get to cash out the RESP to help pay for that post-secondary education. So as a parent, what do you need to do to make sure all those hard earned dollars that you invested are put to the best use now that you are ready to use them?

Talk to your child about their plans. I’m talking about a good heart-to-heart chat.

  • Is your child planning to take a full 4-year or 3-year program?
  • University, college or trade school?
  • Close-to-home or moving out?
  • Are they considering post-graduate studies as part of their plan, which could mean an extra 3 or 4 years of study and more money?
  • Are they truly passionate about becoming a doctor or might they prefer graphic arts as a career?

It’s important to get a good understanding of what direction your child is planning to take in their academic career so that you can map out how best to use their education savings nest egg. It’s equally as important to keep that dialogue going once they start school.

Once you have an idea of where your child is going you’ll be better prepared to speak with your RESP provider about the best options for using your child’s education savings.

Work with your child to build a budget. Let’s face it: parents have been handling the bulk of this one for the child’s entire life, but soon it will be up to your new student to manage their own expenses. By working through a budget together you’ll be able to teach them how to save, prioritize and become a better life manager - skills that will come in handy in adulthood.

  • Find out exactly what expenses your child will have (books, student fees, tuition, travel, entertainment, rent). Most schools have lots of information available on-line to help with this part of the budget.
  • Help them anticipate some of the things they didn’t think of, like an emergency fund.
  • Find out how much money they will have - most likely this will come in lump sums at this stage (summer job earnings, scholarships, RESPs, gifts, loans).
  • Determine the best ways of using all that money by creating a budget.
  • Get your child to commit to it by signing it to create accountability.

Contact your RESP provider. Do this as soon as you can if they haven’t already contacted you. It doesn’t matter what type of plan you have or if your plan is with a group plan dealer, credit union, bank or financial planner you will want to ask some key questions:

  • How much money is available in my RESP broken down by contributions, income and government grants?
  • What are the requirements, if any to withdraw funds from my RESP?
  • What documents will you accept as proof of enrolment for my child?
  • How will you be paying out my child’s money?
  • Are there any additional forms I will need filled out?

Because you have already done your homework and had that long talk with your child you will also be prepared to let your provider know about your child’s academic plans when they ask. For example, with some group plans if your child has decided to do a 1 or 2 year program or has postponed his academic career to travel this will help determine if it makes sense to transfer your plan over to a self-directed or individual or family savings plan or postpone the maturity date of the plan.

The good news is some group plans have the flexibility to accommodate any educational choice your child may make, and can be withdrawn up to 36 years after the plan was opened. Your RESP provider can also help you determine the right withdrawal strategy that will have the lowest tax implications for you and your child.