If you’ve spent years diligently contributing to a Registered Education Savings Plan, this fall might be the moment it all pays off — your child heads off to college or university, and it’s finally time to pull money out. But here’s something that surprises a lot of parents: the way you withdraw from an RESP matters just as much, tax-wise, as the way you contributed to it. Get the withdrawal strategy wrong, and you can hand the government tax dollars you never needed to pay, or worse, forfeit grant money entirely.

As a CPA, I field a wave of these questions every August and September. So with back-to-school season upon us, here’s a practical guide to getting money out of an RESP the smart way.

First, Understand What’s Inside Your RESP

An RESP isn’t one pot of money — it’s three, and the tax treatment differs for each. Understanding this distinction is the entire key to withdrawing efficiently.

Your contributions. This is the money you personally put in over the years. Because you contributed it with after-tax dollars, it comes back out completely tax-free, to anyone, at any time. When withdrawn for a student in school, it’s called a Post-Secondary Education (PSE) payment.

Government grants. The big one is the Canada Education Savings Grant (CESG) — the government’s 20% match on your contributions, up to $500 a year and a lifetime maximum of $7,200 per child. Lower-income families may also have received the Canada Learning Bond and provincial grants.

Investment growth. All the compounding returns your contributions and grants earned over the years.

The grants and the growth together form what’s called the Educational Assistance Payment (EAP) when withdrawn. And this is the crucial part: EAPs are taxable income in the student’s hands, reported on a T4A slip issued to the student, not to you. Your returned contributions are not taxable to anyone.

The Core Strategy: Shift Income to the Student

Here’s where the planning pays off. Because EAPs are taxed to the student — who typically has little or no other income — they’re usually taxed at a very low rate, and often at zero. Remember the basic personal amount: for 2026, a student can earn $16,452 federally before owing any federal tax. A student drawing EAPs while earning modest summer-job income can often receive a substantial EAP with little or no tax consequence.

That’s the whole game: an RESP is, in effect, an income-splitting tool. Money that grew tax-sheltered gets taxed, if at all, in the hands of the family member in the lowest bracket. Your job at withdrawal time is to take advantage of that deliberately rather than by accident.

Prioritize EAPs — Here’s Why

When you request a withdrawal, you (through your RESP provider) get to designate how much comes from EAPs versus your returned contributions. It’s tempting to pull your own tax-free contributions first — but for most families, that’s backwards.

The better default is to draw down the EAP portion first, while the student is enrolled and in a low tax bracket. The reason is what happens to leftover grants and growth if the student’s education ends with money still in the plan. Unused grants must be returned to the government — you lose them outright. And unused investment growth can only come out as an “Accumulated Income Payment,” which, as I’ll explain, is taxed punitively.

Your own contributions, by contrast, can always be withdrawn tax-free later, even after the student graduates. So contributions are the safe money to leave in reserve; the EAPs are the “use it or lose it” money you want to get out — tax-efficiently, in the student’s hands — while you can. Prioritizing EAP withdrawals during the school years protects the grants and shifts the taxable income to the person best positioned to receive it tax-free.

Watch the First-13-Weeks Limit

There’s one timing rule to know at the very start of a program. During the first 13 consecutive weeks of full-time enrolment, there’s a cap on how much EAP can be withdrawn: $8,000 (increased from $5,000 in Budget 2023). For part-time studies, the limit is $4,000 per 13-week period.

Once the student has completed those first 13 weeks, the cap disappears entirely — any amount of EAP can be withdrawn thereafter, provided the student remains enrolled and eligible. This rule catches families who face heavy first-semester costs; if your combined tuition and residence bills exceed $8,000 up front, plan to cover the excess from your tax-free contributions (PSE), which aren’t subject to this limit, or from other savings. (In genuinely exceptional cases, a provider can apply to the government for approval to exceed the cap.)

Proof of Enrolment and Practical Mechanics

Before releasing any EAP, your RESP provider must verify the student is enrolled in a qualifying program — so you’ll need documentation like a letter of acceptance or a confirmation of enrolment showing the student’s name, program, and term dates. A qualifying program is generally a post-secondary course of study lasting at least three consecutive weeks with at least 10 hours of instruction per week, and it includes many college, university, trade school, and apprenticeship programs, at home and abroad.

A few practical tips I share with clients: request withdrawals in step with actual expenses rather than pulling everything at once; keep each year’s EAP within the student’s low-income room where possible to preserve the zero-tax outcome; and remember that if a student has significant other income in a given year (a well-paid co-op term, say), it may be worth leaning more on tax-free contribution withdrawals that year and heavier on EAPs in a leaner-income year.

What If Your Child Doesn’t Pursue Post-Secondary?

Sometimes the plans change — a child takes a different path, or delays school. Don’t panic, and don’t rush to collapse the plan. You have options, and some are far better than others.

Wait. An RESP can generally stay open for up to 35 years, so there’s no need to act immediately. A child who decides to attend at 22, 25, or later can still use the funds.

Switch the beneficiary. In a family plan, you can often redirect the funds — including grants and growth — to a sibling, subject to that child’s own CESG limits.

Transfer growth to your RRSP. This is the key tax-saving move if the plan won’t be used for school. Provided the RESP has been open at least 10 years, all beneficiaries are 21 or older and not pursuing post-secondary education, and you have the contribution room, you can roll up to $50,000 of the accumulated investment income into your RRSP (or a spousal RRSP). Your original contributions still come back to you tax-free, and the grants are returned to the government.

Take an Accumulated Income Payment (AIP) — the last resort. If you simply withdraw the investment growth to yourself, it’s taxed at your full marginal rate plus an additional 20% tax (12% in Quebec), and the grants are clawed back. This is the most expensive way to unwind an RESP, which is exactly why the RRSP rollover is worth exploring first. An AIP requires filing Form T1172 to calculate the extra tax.

The Bottom Line

An RESP is one of the best deals in Canadian personal finance — free government grant money, decades of tax-sheltered growth, and a built-in income-splitting advantage at the end. But that final advantage only materializes if you withdraw thoughtfully. Draw the taxable EAP portion first, while your child is enrolled and in a low bracket, to lock in the grants and keep the tax at or near zero. Keep your tax-free contributions in reserve. Respect the $8,000 first-semester limit. And if your child ends up not going to school, look hard at the RRSP rollover before ever resorting to an AIP.

The mechanics vary by plan and by family, and a poorly sequenced withdrawal can quietly cost hundreds or thousands in avoidable tax or forfeited grants. If you’re about to start drawing on an RESP this fall — or facing the question of what to do with an unused one — a short conversation with your CPA can make sure the money you worked years to build works as hard as possible on the way out.

Photo by Redd Francisco on Unsplash

Disclaimer

The information discussed in this article is general in nature and should not be construed as any sort of advice. If you have any particular questions regarding your personal tax situation, please reach out to sandeep@multanitax.ca.