RESP: What if one of my children or my child does not attend post-secondary education?

These days, parents save a lot of money in order to pay for their children's post secondary education. Sometimes, life takes us in different directions than we originally planned. Our children may decide overnight to drop out or give up on their educational plans. So what do we do with the money that has been set aside for education:

First, you could wait and do nothing, as the plan has a 35-year lifespan and it is not impossible that your child will decide to return to school. The plan is not limited to funding university and college education, so your child could enroll in one of the post-secondary programs recognized by the Ministry of Education.

Secondly, if you are absolutely sure that your child will not be going to school, you may want to consider transferring the money into an RESP for one of your other children, but be sure not to exceed the allowable contributions. By the way, if your child receives the transfer amount over the age of 21, tax penalties may apply. In the same vein, it might be an excellent idea to open a Family RESP Plan and enroll all your children in it. There may be some conditions attached to these family plans, especially when grants have been deposited into an RESP. It is therefore always advisable to consult a financial expert before making any arrangements. (See my March 1, 2022 article on RESPs)

Thirdly, the least known thing about RESPs is that you can transfer up to $50,000 of earned income to your or your spouse's RRSP. Instead of closing the RESP account and taking the tax hit on the earnings, you may want to consider transferring the money to your RRSP account, as long as it doesn't result in exceeding the allowable contributions.

The government wants us to focus on our children's education and wants to make sure that the RRSP has been around long enough, so the final option would be to collapse the RESP. When you close your child's RESP, you get all of your contributions - the principal - back without tax penalty, but any accumulated growth is taxed so an additional 20% penalty will have to be paid and any government grants will have to be repaid.

If you have any questions or comments, please do not hesitate to contact me.

Source: Les Affaires and AMF.