How to avoid these common RESP withdrawal mistakes

As the school year approaches, families across the country are preparing to access their registered education savings plans (RESPs) to fund their child's post-secondary education. RESPs offer a powerful tool to save for education, but experts warn that withdrawals can be complicated and lead to tax penalties or reduced growth if not managed properly.

Sandi Martin, a certified financial planner, advises families to begin withdrawing from the taxable component of the RESP first, while the student is still enrolled in post-secondary education. This avoids penalties and allows the remaining funds to continue growing. Parents should also gradually reduce stock market exposure in the account as their child nears post-secondary education to avoid potential losses from market corrections.

Nick Hearne, a financial advisor, recommends starting the RESP withdrawal process as soon as proof of school enrollment is received. This ensures the funds are available when needed for tuition and other expenses. As the student approaches high school graduation, Hearne suggests shifting investments to lower-risk, less volatile options to minimize the risk of selling investments at a bad time.

Financial planner Julie Petrera warns that viewing an RESP as a comprehensive funding plan may lead to mistakes. The lifetime limit is $50,000, which may not be sufficient for certain specialized programs like law or medical school. Additionally, RESP grants and investment growth are only available while the student is an eligible beneficiary. Parents should consider supplementing their RESP contributions with additional savings outside the plan to cover the full cost of their child's education.