What happens to an RESP if your child doesn’t go to university, college or trade school?

You want the best for your child. You’ve saved, planned, and invested in their future with a Registered Educations Savings Plan (RESP).

But what if that future doesn’t include higher education – at university, college, CEGEP, or skilled trade, vocational or technical school? Right away, or at all?

Your child can follow their own path, and your savings won’t go to waste. An RESP is designed with flexibility in mind: as life plans evolve, the RESP can be put to use in another way.

Here are four ways to make the most of the savings you’ve built — including what to do with any unused funds.

1. Keep the RESP open

Your child may change their mind later. An RESP can stay open for up to 35 years from the date it was first created. (And for 40 years if the child is eligible for the disability tax credit.)

This gives time for your child, in this case, the beneficiary of the RESP, to:

• Reconsider post-secondary education
• Enrol in a part-time program
• Choose an eligible apprenticeship

According to the Government of Canada’s list of qualifying educational institutions, RESPs can be used for:

• Full-time studies
• Part-time programs
• Many skilled trades and apprenticeship programs

2. Transfer the RESP to another child

If one child doesn’t use the RESP, you can transfer the savings to another child, often without penalty.

To transfer without tax implications:

• The RESP must be a family RESP
• The new beneficiary must be a sibling of the original beneficiary
• The new beneficiary must be under 21
• Additional conditions may apply, so check with your financial institution

If a sibling has available grant room, you may also be able to transfer unused Canada Education Savings Grant (CESG) funds to them.

3. Transfer the RESP to an RRSP

If there are no other beneficiaries, you can transfer up to $50,000 of RESP accumulated income payments to a registered retirement savings plan (RRSP), and/or you can withdraw RESP contributions with no tax implications and then contribute them to an RRSP, as long as:

• The RESP has been open for at least 10 years
• All beneficiaries are at least 21 years old and not currently eligible to receive an education assistance payment
• You have enough RRSP contribution room

Your own contributions can be returned tax-free. Earnings not transferred to an RRSP are subject to tax at your regular income tax rate plus an additional 20%.

Note: There are other situations where the transfer can apply. For example, if the payment is made in the year that includes the 35^th anniversary of the RESP, unless the RESP is a specified plan, in which case the payment is made in the year that includes the 40^th anniversary of the RESP. Or if all the beneficiaries under the RESP are deceased when the payment is made.

4. Close or withdraw the RESP

If you close the RESP:

• Your contributions are returned tax-free
• Government grants (CESG, CLB) are returned to the government
• Earnings are taxed at your income tax rate, plus 20 per cent

An RESP is a valuable investment, even if your child’s path doesn’t include traditional post-secondary studies. An advisor can help you decide whether to keep the plan open, transfer funds, or close it.