What I Learned Withdrawing From an RESP for the First Time

My daughter started her first year of CEGEP a few weeks ago, and along with drop-off day came my first real RESP withdrawal. I'd been contributing to her RESP since she was a baby, so up until now the only things I'd really paid attention to were the annual contribution deadline and whether I was leaving grant money on the table. Taking money back out turned out to have its own set of rules that nobody really explains to you until you're staring at the withdrawal form.

It's not all the same money

The first thing that surprised me is that an RESP isn't one lump sum you can pull from however you like — there are two distinct kinds of withdrawals, taxed completely differently.

PSE withdrawals (Post-Secondary Education payments) are just your own contributions coming back to you. That money was already taxed once, years ago, so it comes out tax-free and, from what I can tell, isn't capped.

EAP withdrawals (Educational Assistance Payments) are everything else in the account: the government grants — the CESG can add up to $7,200 per kid over the life of the plan — plus whatever the investments actually earned. This part only gets paid to the student, and it counts as their taxable income, not mine.

The $8,000 detail I almost missed

For a full-time student's first 13 weeks of school, EAP withdrawals are capped at $8,000 (part-time students are capped at $4,000 for the same period). After those first 13 weeks, the cap disappears for full-time students. I didn't catch this until I hit a validation error while filling out the request — apparently a lot of parents try to front-load a big EAP withdrawal in September without realizing the limit exists.

None of it happens automatically, either. Before the EAP portion gets released, proof of enrollment is required — a screenshot of her course confirmation showing her name, student number, and term dates was enough.

My actual takeaway

Because EAP counts as the student's own income, and most students barely earn anything else, in practice she'll likely owe little or no tax on it once her income clears the basic personal amount. What I'm doing now is spreading the EAP withdrawals across her program instead of taking one large amount in a single tax year, and using PSE withdrawals more freely since they're tax-free regardless of timing. It's a small bit of planning, but it's the difference between an essentially tax-free education fund and one that quietly hands an 18-year-old a tax bill.

If you're still in the contributing phase of an RESP, none of this matters for a few years yet — but it's worth knowing it's coming. In the meantime, the card above has the same referral offer that got our family started with Wealthsimple in the first place.