CRA: Accumulated Income Payment rules
Eligibility for transferring RESP growth to subscriber's RRSP without penalty. Requires plan open 10+ years and beneficiaries 21+.
CRA: RESP →Stage · Saving for post-secondary education in Canada
Wind-up: what to do if the plan isn't fully used
Most RESPs get used. For the ones that do not, Canadian rules provide three paths: transfer to a sibling, transfer growth to the subscriber's RRSP (if room exists and plan is 10+ years old), or close the plan with a 20% penalty on growth plus mandatory grant repayment to the government. Contributions always return to the subscriber tax-free.
What to do this week
- If one sibling doesn't attend post-secondary, transfer their share to another family plan beneficiary. No tax or penalty.
- If no beneficiary attends post-secondary, wait. Plans can stay open up to 36 years. Many young adults return to school in their late 20s.
- Calculate the Accumulated Income Payment option: subscriber must have RRSP room, the plan must have been open 10+ years, and all beneficiaries must be 21+ and not pursuing post-secondary. AIP growth can transfer to RRSP up to $50,000 lifetime.
- If closing the plan: contributions return tax-free, growth is taxed at subscriber's marginal rate plus 20% penalty, and all government grants return to the government.
What to avoid
- Closing a plan before exploring AIP. The RRSP transfer option is materially better than paying the 20% penalty for most subscribers with RRSP room.
- Assuming a child who dropped out will not return to school. Canadian young adults frequently return to post-secondary in their mid-20s. The 36-year plan life provides runway.
- Forgetting to repay the grants before closing. The provider typically handles grant repayment automatically but confirm on the final statement.
- Panicking about a specific child. Family plans allow redirection to siblings, including ones born after plan opening. A sibling plan beneficiary can receive grants the original beneficiary could not use.
Calculators for this stage
Forms to file at this stage
RESP provider: plan wind-up form
Each provider has its own wind-up process. Typically handles grant repayment and issues T4A for AIP or T4A for taxable distributions.
Frequently asked
Can I transfer my child's RESP to their sibling?
Yes in a family RESP (multiple beneficiaries in one plan). Partial or full transfer between named beneficiaries. Individual plans require a more complex process or plan conversion.
What is an Accumulated Income Payment?
A way to withdraw RESP growth when the beneficiary has not attended post-secondary. Paid to the subscriber and taxed at their marginal rate plus 20% penalty, unless rolled to their RRSP (up to $50,000 lifetime if subscriber has room and plan is 10+ years old).
How long can I keep an RESP open?
36 years from plan opening. Specified plans for beneficiaries with disabilities can extend to 40 years. Keep the plan open if there is any chance the beneficiary might pursue post-secondary in the future.
What happens to grants if we wind up the plan?
All federal grants (CESG, CLB, Additional CESG) and provincial grants (QESI, BCTESG) return to the government. Subscriber contributions return to the subscriber tax-free. Growth is taxed at subscriber rate plus 20% penalty unless rolled to RRSP via AIP.