Q: What can be done with RESP money that is left over after a student graduates?
—Lynda Pappas, Mt. Pleasant, Ont.
A: A student with money left over? That seems as unlikely as a student with time left over during exam week or beer left over after a keg party. But if it happens, what can be done? If the government grant and investment earnings have already been used up, the capital that remains can be withdrawn. Lenore Davis, a financial planner and senior partner at Dixon, Davis & Co., says if there are still investment earnings left, “this may be transferred to an RRSP owned by the RESP plan owner, if that person has RRSP room.” Or the grant money and earnings can be withdrawn and taxed in the student’s hands up to six months after the child has left school. “After that point, the contributor will have to pay tax on the earnings and grants will be returned,” says Ron Graham, a financial planner and accountant. “The contributor will also have to pay a penalty tax of 20% of the investment income.” It’s best to withdraw the money while the student is in school, or, if there are siblings, you may be able to add them as beneficiaries so they can use the money (to throw a really awesome keg party).
Bruce Sellery is a speaker and author of The Moolala Guide to Rockin’ Your RRSP. Do you have your own personal finance question? Write to us at email@example.com