Personal Finance

Any experience with RESP withdrawal for non-educational reasons

  • Last Updated:
  • Dec 4th, 2019 3:50 pm
[OP]
Newbie
Feb 3, 2013
17 posts
19 upvotes

Any experience with RESP withdrawal for non-educational reasons

Hi
Seeking clarity on withdrawing funds from the kids RESP and how the grant clawback calculates. As mentioned in the title, this is for non educational purposes.

At this point not looking for alternatives or why not to do this. Thanks.

Looking to take out 4K and I’m wondering how the grant clawback is calculated. I.e. we haven’t benefitted from the full 25% for every year it’s been open - so my best guess is for every $2500 the gov will take 20% back?

I’m also thinking about splitting the withdrawal in two so that at least half can continue to accrue earnings until the funds are needed for withdrawal, seeing as there are no fund / account fees.

Thanks for your help.
3 replies
Deal Fanatic
Jul 1, 2007
8477 posts
1557 upvotes
Pretty much. You're taking non-education capital withdrawals out; for every $1000 you take out $200 (basic CESG) goes back to HRSDC. Once you've taken all the capital out, what's left (the growth/income) is taxed at your marginal rate +20%, unless you shift it into an RRSP (if you have room).
Money Smarts Blog wrote: I agree with the previous posters, especially Thalo. {And} Thalo's advice is spot on.
[OP]
Newbie
Feb 3, 2013
17 posts
19 upvotes
Thanks Thalo.
Follow up to the latter part of your post, re: taxes. Are you saying the marginal + 20% applies if I’m cleaning out the account?

Eg let’s say there is a current balance of 10k. I take out 4K, with 800 going back to hrsdc. Will I be taxed on the remaining 3200? It was my after tax dollars going in, but was allowed to grow tax free within the account.

Thanks for the help.
Deal Expert
User avatar
Nov 15, 2004
19568 posts
3577 upvotes
Toronto
What Thalo is referring to is withdrawing the income for non-educational purposes once that's all that's left in the account. You're probably not going to do that right now, as your kid has to have reached age 21 and the policy must have been open for at least 10 years for that to be an option. It sounds like your kid is still young enough to be collecting grants, so that's off the table.

The grant return is calculated by dividing the amount you're going to withdraw by your Assisted Contributions and then applying that percentage to the Basic and Additional CESG amounts you've received so far. For example, if your policy looked like this:

Assisted - $5000
Unassisted - $2000
Basic CESG - $1000
Additional CESG - $200

and you withdrew $4000, that means 80% (4000/5000) of the grants would go back, so 1000x0.8= $800 + 200x0.8=160 for a total of $960 net returned to the government on your $4000 withdrawal.

Only the grants that are linked to your contributions would be returned. That's the CESG, SAGES (if you're in Saskatchewan) and QESI (Quebec) only. The BC grant and CLB would be unaffected unless you closed out the policy.

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