It’s Back: Leaving the Nest Happens Again
By Ryan Goldsman, CFP®, PAIP®
This past week, one of my long-term friends contacted me to discuss how to best help his eldest move into an apartment of her own in September. I was flattered, but quickly advised him that I wouldn’t be able to do any of the heavy lifting. Instead, I would be able to help best in the financial planning department.
At age 18, his daughter was moving three hours from home to attend university, and for the first time would be living in her own apartment. Since planning was part of life, a substantial amount of money was available inside of a Registered Education Savings Plan (RESP) for the upcoming expenses. Having to figure out the best equation (money wise) was a good problem to have.
For those who want to make a withdrawal from their RESP for educational purposes, there are a number of conditions that must first be met. These include attending a recognized educational institution on a full-time basis, or meeting additional conditions if it’s on a part-time basis, or for a short time only.
Once the conditions are met, then the student and the plan holder (typically the students’ parents) must present proof of enrolment to make the withdrawal a qualifying withdrawal.
When attending a post-secondary institution, there are two types of possible withdrawals: post-secondary educational withdrawals (PSE) and education assistance payments (EAP).
Beginning with PSE withdrawals, there are no maximum on the amount that can be taken, and all amounts are not taxable. The amounts withdrawn under the PSE category comprise only the contributions made by the plan holders.
The second type of withdrawal is the EAP withdrawal which is comprised of the Canada Education Savings Grant (CESG) and the investment returns earned inside the plan. EAP withdrawals are taxable to the recipient, which means they must be paid to the beneficiary (which is the student). They cannot be paid to the parents. In addition, the maximum EAP withdrawal is no more than $5,000 during the first 13 weeks of one’s post-secondary studies. After that period of time, there are no restrictions.
Since attending university means having to rent and furnish an apartment for the first time, it was clear that $5,000 would not be sufficient for my friend’s daughter, but it would move the needle. To pay the many bills and remain solvent until the end of the semester, dipping into one’s own capital would be necessary.
On a personal note, I was happy to provide information that would help my friend, and completely ecstatic that I didn’t have to help him move furniture. It was clear that he valued our friendship!