Smart RESP Withdrawals: How to Minimize Taxes and Maximize Savings

As summer comes to an end, many students and their families are shifting their focus to the start of a new school year — and the costs that come with it. For those with Registered Education Savings Plans (RESPs), this is a crucial time to think not just about using the funds, but how to withdraw them wisely. 

RESPs are an excellent vehicle for funding post-secondary education, offering tax-deferred growth and access to generous government grants. But if the withdrawals aren’t planned carefully, you could miss out on valuable tax-saving opportunities. A well-planned withdrawal strategy can make a significant difference in minimizing taxes. Here are a few key tips to help you make your RESP withdrawals as tax-efficient as possible.  

1. Understand the RESP Components¹

To begin making smart RESP withdrawal decisions, it’s important to understand what exactly is in the plan. RESPs are made up of three components, each with its own set of rules and tax implications: 

• Post-Secondary Education (PSE) Withdrawals: These are the contributions made by the subscriber (usually a parent or guardian) using after-tax dollars. Since taxes have already been paid on this money, it can be withdrawn tax-free at any time. 

• Educational Assistance Payments (EAPs): This portion includes government incentives like the Canada Education Savings Grant (CESG), the Canada Learning Bond (CLB), any applicable provincial grants, and all investment earnings (such as interest, dividends, and capital gains). When withdrawn, these funds are considered income for the student and are taxed in their hands. 

• Accumulated Income Payments (AIPs): These are the investment earnings within the RESP that are not used for educational purposes. If the beneficiary does not pursue post-secondary education, these funds can be withdrawn under specific conditions, but are subject to regular income tax plus an additional 20% penalty tax unless transferred to a registered retirement savings plan (RRSP), if eligible. 

Understanding how these components work—and when and how to access them—is the first step in maximizing your RESP’s value. 

2. Timing is Everything

A common mistake families make is waiting until the later years of school to begin drawing EAPs, hoping to “save them for when they’re really needed.” However, this approach can have unintended tax consequences. It’s generally more tax-efficient to start withdrawing EAPs early—especially when the student’s income is lowest, typically in the first or second year of studies—because this takes advantage of their basic personal exemption and lower marginal tax rates. Additionally, the first EAP withdrawal for full-time students is subject to an $8,000 limit (and $4,000 for part-time students), so it’s ideal to initiate this initial withdrawal as soon as possible. Doing so allows access to additional EAP funds later on, past the 14-week threshold. Timing is also important since financial institutions are often busiest processing EAP and PSE withdrawals at the beginning of semesters (September and January), so it’s wise to plan ahead for possible delays in receiving funds or to strategically time withdrawals either before or later in a semester for optimal cash flow.

As income rises in later years through part-time jobs, co-op placements, or scholarships, reducing EAP withdrawals can help avoid pushing the student into a higher tax tier. At the same time, use PSE withdrawals strategically throughout the education period to cover immediate expenses or provide financial flexibility. Avoid depleting contributions too early, as this could force a heavier reliance on taxable EAPs during higher-income years.

3. Monitor and Adjust Regularly

RESP withdrawal planning is not a set-it-and-forget-it task. Life happens. A student may change their course load, take time off, pursue a co-op position, or switch programs entirely. These changes can affect their income, expenses, and eligibility for certain grants or tax credits. 

To maintain tax efficiency, it’s important to regularly review RESP usage, adjusting withdrawal amounts as needed to reflect current and projected tax situations. Because each family’s financial circumstances, provincial grants, and RESP details are different, working with a portfolio manager or financial advisor can help you build a personalized strategy that maximizes benefits and keeps your plan aligned with both your goals and your child’s evolving needs. 

RESPs offer a great opportunity to reduce the burden of education costs, but to get the most out of them, it’s essential to think beyond just saving—how and when you withdraw the funds matters just as much. By understanding the structure of your RESP, timing withdrawals strategically, monitoring your plan regularly, and seeking professional input, you can significantly reduce taxes and maximize the support you provide to your child during their post-secondary journey. 

RESPs are more than just a savings tool—they’re a powerful tax planning vehicle. Make the most of yours. 

Sincerely,

Harrison Brown, B.Sc., CFA
Portfolio Manager
Alitis Investment Counsel