RESP money: Whose is it?

An English major is refused her RESP money because her parents don’t like her choice of studies.

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From the September/October 2013 issue of the magazine.

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Q: I’m a second-year university student and my parents think my English major is a waste of time. They’re now refusing to give me any more RESP money unless I switch disciplines. Is this legal?

—G.R., Victoria

A: We hate to be the bearer of bad news, but yes. “They own the money and can do whatever they want with it,” says Mike Holman, author of The RESP Book. Any funds don’t legally belong to you (the beneficiary) until your parents (the subscribers) pay it out. If you want the money, you’ll have to appease them. That, or hope they change their minds later. (But hopefully not too much later: your parents can keep the account open for 35 years, notes Holman.) Take some comfort in knowing that if they withdraw the RESP money without giving it to you, the 20% grant-matched funds go back to the government. Any money earned off the principal will also become taxable that year and will be subject to an additional 20% penalty. Ouch!

Got a delicate money question? Send it to ask@moneysense.ca.

3 comments on “RESP money: Whose is it?

  1. Speaking from the experience as a sales representative for RESPs, I don’t think your answer is quite correct. In many cases, the interest and grants can be paid out with the principal being withdrawn. If this student is currently registered in college/university (or within 6 months after ending studies) and can therefore show proof of registeration in an eligible program, an EAP (Education Assistance Payment) withdrawal should be possible. The principal is controlled by the contributor, but all income and government grants are paid directly to eligible students, not the RESP subscriber (usually, parents), and is taxable income (for the student). It is only once the RESP beneficiary is 21 years old (and the plan has been open at least 10 years) that the plan’s income can be disbursed to the plan holder. Government grants can only be paid out to eligible students. Therefore, this student should be contacting the RESP provider directly to inquire about withdrawing funds.

    Reply

    • ”’without the principal being withdrawn”

      Reply

      • I gave up my daughter’s RESP guardian right my ex-husband when I was sick (he convinced me, our daughter was living with him at the time), now he refuses to fill form for her to withdraw RESP fund. She has finished her first semester in McMaster university. What can I and she do in this case? Note, the RESP was contributed during our marriage.

        Reply

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