RESP Wrinkles

Last week I read a good post about 8 Things You Need to Know about Withdrawing Money From your RESP Account but it really didn’t sink in until this week when I started trying to take money out of my kids’ RESPs (i.e. RESP withdrawals).

Last year (2009) I did my RESP withdrawals from my daughter’s RESP on-line and there was really no big issues, it all seemed to work just fine, however, evidently things changed because of abuse, but I am getting ahead of myself.

I checked my daughters’ RESPs and noted an interesting blurb at the bottom of the account info on line:

RESP withdrawals are not available through EasyWeb. For details about making an RESP withdrawals, please contact EasyLine at 1-866-222-3456.

That caused me to go back and read the blog entry again, and noted that the Government is now tightening down the methodology for removal of moneys from these savings accounts. Remember that an RESP is not like an RRSP in that you are putting After Tax money into the account, and there is no direct Tax savings to you for doing this. The RESP funds can earn Education Grants ( i.e. an EAP (Educational Assistance Payment) ) from the Government which is the major advantage to these accounts, and then when the money comes out the growth (and possibly the grants) are then Taxed in the hands of the Student (not the contributors), which is why I opened these accounts.

I dutifully called TD Canada Trust and was told that I could not take money out of my daughters’ accounts on line or even on the phone, until I went into a TD Canada Trust branch with a Verification of Enrollment form from my daughters’ schools (remember I have two daughters going to University this year). This means both Wilfrid Laurier and Acadia must send me one of these forms before my bank will release the funds for their education. I was told that this was due to abuse over the past few years by folks who had kids that didn’t actually attend any educational institution yet funds were removed from the RESPs, so now there is a need to prove your child is in an accredited program at a recognized post secondary institution.

Fudge! I exclaimed when I was told this, because this means I must pay for my kids expenses first and then wait to get the money to cover these large expenditures. In one case I can put the expenses on my Credit Card and get some PC Points, but the other school will not allow this, so I must outlay my own money and then get reimbursed.

Keep this one in mind folks, it’s not as easy as it was, to make RESP withdrawals, because a few knuckle heads decided to take advantage of the program.

{ 10 comments }

{ 10 comments… add one }
  • Daniel Olson September 19, 2010, 4:28 PM

    My experience has been much different. UBC makes the certificate of enrollment available as a download at no cost. It’s available the day after registration in August. The withdrawal request was sent to Sun Life and the cheques arrived a week later. In trust accounts are at significant disadvantage to RESP. Annual taxation attributed to parent, and no 20 percent grant!

    Reply
  • Alex C August 26, 2010, 8:59 PM

    I’m surprised you never had to prove it before? I always had to get a Verification of Enrollment letter which cost me about $10 each year. (actually it was only $3 the first 2 years which then went up to $10, but that’s a gripe with the university not the RESP system).

    Even bigger issues come if you don’t have the cash to cover the tuition prior to the RESP collection, which can often be a while after the tuition deadline. The same thing happens with student loans, in that you dont receive them till well after your tuition is due, causing students who already can’t afford school to incur excess fees and interest while they wait for their loans to arrive.

    Reply
  • Personal Finance August 26, 2010, 6:21 PM

    I’m not surprised at all. This seems to work in every field. Just because few “knuckle heads” to quote you, took advantage of the system, now they screw the entire system. I often wonder if RESP is really the best. I have my kids money “in trust” founds. Is less headache and less government involvement and the boys will have a chance to do whatever they choose to.

    Do you know how long is going to take until you will receive the money? Do universities charge you for their documentation?

    Reply
  • George August 26, 2010, 6:14 PM

    Just a clarification regarding acronyms. The EAP (Educational Assistance Payment) is a withdrawal of grant money and earned income in the RESP that’s made for the benefit of the student, and taxable in the student’s hands.

    The grant money you’re thinking of is the CESG (Canada Education Savings Grant), which is the 20% that is added to the account on top of your contributions, subject to annual and lifetime maximums.

    The CESG and an EAP aren’t the same thing.

    One thing to note, though – you should be able to make a withdrawal of your contributions to the RESP without ANY documentation regarding enrollment. The contributions are after-tax money and they are always ‘owned’ by the account contributor. You should be able to withdraw some of your contributions to cover the initial payments to the university, and then make an EAP withdrawal later on to pay for subsequent expenses.

    Reply
    • bigcajunman August 26, 2010, 6:25 PM

      Excellent points, thanks for the clarification, but now I can take nothing out without documentation!

      Reply
  • Michael James August 26, 2010, 8:54 AM

    Just a few more wrinkles and RESPs will become deposit-only accounts.

    Reply
    • bigcajunman August 26, 2010, 8:57 AM

      This is one of my concerns as well, while the EAP is a nice part of the system, a few more documentation requests may cause me to rethink using the RESP, and instead staying with an “In Trust” model. If the documentation from the University costs me money (which I think it might) and the visit to the bank to get my money costs me money, there will be another more scathing post written!

      Reply
  • Money Smarts Blog August 26, 2010, 6:17 AM

    Thanks for the link.

    This is really interesting information – the government has always required financial institutions to verify enrolment when someone requests a withdrawal, so the fact that TD wasn’t doing that is a serious breach of the RESP promoter rules.

    Reply
    • bigcajunman August 26, 2010, 6:35 AM

      I seem to remember them asking me what institution my daughter attended, but that was about it.

      Reply

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