# RESP and taxes if not used by student.



## recklessrick (Jun 16, 2013)

Looking to get two RESP accounts set up, one for each kid. I've been reading about them to make sure I understand what I am doing. I have a question though. This site says that if the funds are not used by the student, that I can get my money back but I may not get my earnings. If I do get my earnings, it's under the regular tax rate plus 20%! Is that correct? Sounds like if it isn't used for education, I may get screwed out of earnings that would have been made over the 18 years or so. I'd use TD Waterhouse for the accounts.

I understand that the grant amount must be paid back, that's fine.


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## liquidfinance (Jan 28, 2011)

The way around the 20% penalty is to transfer the funds into your RRSP assuming you have the contribution room available. I believe there is a $50k limit on what can be transferred to the RRSP.


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## recklessrick (Jun 16, 2013)

That's what I've come to the conclusion of. You can take out your capital tax free but the earned interest is what you'd pay the 20% on as well as income tax if you don't move it over to your RRSP. All in all, not too hard to do. Just plan a little and make sure I leave room for that or future years if I ever need to move it over. It's more likely that the kids will be going to school and use it all up.


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## Mall Guy (Sep 14, 2011)

why two RESP accounts and not a family plan ? That way if only goes on to school, they can use all the growth (but only their portion of the grant), and you might get some of you contribution back . . . also, if you are able to max the contribution in the right kind of investment, the first might be able to use the annual income in the plan to fund a portion of the education costs before you have to sell any investments, while protecting the original contribution.


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## recklessrick (Jun 16, 2013)

I hadn't heard of a family plan. That would be ideal, absolutely. I'm going to read up more on that. You are right, if they don't even use it all, I can still get some of my contribution back and move any left over earnings into the RRSP. I like how it can possibly be used in the future for my retirement without sacrificing gains... as in, the money isn't going to go to waste if they don't use it and I'm not losing any opportunity cost of money either.


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## sprocket1200 (Aug 21, 2009)

recklessrick said:


> Looking to get two RESP accounts set up, one for each kid. I've been reading about them to make sure I understand what I am doing. I have a question though. This site says that if the funds are not used by the student, that I can get my money back but I may not get my earnings. If I do get my earnings, it's under the regular tax rate plus 20%! Is that correct? Sounds like if it isn't used for education, I may get screwed out of earnings that would have been made over the 18 years or so. I'd use TD Waterhouse for the accounts.
> 
> I understand that the grant amount must be paideia back, that's fine.


Yup, it's a surcharge. A lot of people are going to feel a lot of pain!

Besides the family plan don't forget that each plan has a limited life (max years before it must be wound up). So,open another family account each five years or so to extend the total educational funding provisions!


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## recklessrick (Jun 16, 2013)

sprocket1200 said:


> Yup, it's a surcharge. A lot of people are going to feel a lot of pain!
> 
> Besides the family plan don't forget that each plan has a limited life (max years before it must be wound up). So,open another family account each five years or so to extend the total educational funding provisions!


Nice, haha.

Yeah, if you didn't know any better (about rolling the interest increase into an RRSP), you'd feel some serious pain!


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## alingva (Aug 17, 2013)

resp is divided into 3 parts. your money (contributions), grant and the growth. you never pay taxes on your contributions, your kid who receives RESP withdrawals pays taxes on the grant and the growth. if he/she does not go to school you can give it to your next kid (up to $7200 of the grant portion). if you do not have kids who go to school - you can contribute the growth portion to your RRSP if you have room (the plan has to be at least 10 years old and the kid has to be (if i am not mistaken) 21y.o.), the grant goes back to the Gov


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## alingva (Aug 17, 2013)

http://www.canlearn.ca/


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## recklessrick (Jun 16, 2013)

alingva said:


> http://www.canlearn.ca/


Thanks for the link. I like your sig BTW


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