RESP Options When Education Plans Change

A Registered Education Savings Plan (RESP) is designed to support post-secondary education. But life doesn’t always follow a straight path. If your child decides not to pursue college, university, or other qualifying education, you might wonder: What happens to the RESP funds? Do you lose the money?

The good news is that RESPs offer flexible options to adapt to changing plans. With the right strategy, you can recover your contributions, manage grants properly, and even repurpose the savings for other goals.

First: You Can Always Get Your Contributions Back

Any money you personally contributed to the RESP is yours to withdraw at any time, regardless of whether your child attends post-secondary education.

Key Fact	Details
Tax Status	Withdrawals of your original contributions are tax-free because you already paid tax on the money before contributing.
Restrictions	No penalties or restrictions on withdrawing your original contributions.
Considerations	The only complications involve government grants and investment income, which are treated differently.

The only potential complications involve the grants and investment income, which are handled differently.

What Happens to Government Grants and Growth?

If the RESP beneficiary does not pursue post-secondary education:

Government grants (like CESG and CLB) must be repaid to the government.
- Only the unused grant amounts are returned.
Investment growth (interest, dividends, capital gains) earned within the RESP becomes taxable when withdrawn.

You cannot keep the grants if the funds are not used for eligible education expenses, but your investment growth is still accessible—with some tax considerations.

What Is an Accumulated Income Payment (AIP)?

If there’s investment growth left in the RESP after contributions and grants are handled, you can withdraw it as an Accumulated Income Payment (AIP).

Key AIP rules:

AIPs are taxable as regular income.
In addition to regular tax, a 20% penalty tax (federal) applies to AIPs.
You can contribute up to $50,000 of AIP funds into your RRSP or a spousal RRSP to defer taxation and avoid the penalty, provided you have available RRSP room.

At Optimize, we help you plan these AIP withdrawals or RRSP rollovers to manage tax impact.

Alternative: Transferring the RESP to Another Beneficiary

Another flexible option is to transfer the RESP to another eligible beneficiary, such as a sibling. This helps preserve the grants and investment growth for education purposes.

Conditions for transferring:

The new beneficiary must be under 21 years old (for family plans).
The lifetime CESG limit of $7,200 per beneficiary still applies.
Contributions remain within the overall RESP limits.

Optimize assists families in managing these transfers, especially when multiple children are involved.

Closing the RESP: Final Considerations

If no other options apply, the RESP will eventually be closed. Upon closure:

Your contributions are returned to you, tax-free.
Unused government grants are repaid.
Investment income is withdrawn as AIP (with applicable taxes and penalties, unless rolled into an RRSP).

It’s important to plan this process carefully to minimize taxes and maximize available savings.

How Optimize Helps You Manage RESP Funds When Plans Change

At Optimize, we guide you through the RESP exit strategy with clarity and precision. Our approach includes:

Advising on grant repayments and tax consequences.
Calculating AIP amounts and RRSP rollover options, avoiding unnecessary penalties.
Facilitating RESP beneficiary transfers, when possible, to preserve funds for education.
Coordinating RESP wind-down with your broader financial plan, ensuring funds are used effectively.
Monitoring timelines and contribution limits, so no opportunity is missed.

With Optimize, even if education plans change, your RESP savings remain a valuable part of your family’s financial picture.