We work with many children with special needs. One of the questions often arise from their parents is they already have set up a Registered Education Savings Plan (RESP), but they do not expect their children could pursue in studying post-secondary education due to their disability condition, in such scenario, can they transfer the RESP into the Registered Disability Savings Plan (RDSP)?
Let’s begin by exploring about the Registered Education Savings Plan. The RESP consists of three main components, accumulated income payment, contribution, government’s monies.
(1) Accumulated Income Payment (AIP)
Effective Jan 1st, 2014, the accumulated income from the RESP may be transferred to a RDSP on a tax deferral basis, but given the following conditions outlined below are met and both the RESP and RDSP have common beneficiary. The beneficiary must meet the existing age and residency requirements for RDSP contributions and one of the following conditions is met:
- Beneficiary has severe and prolonged mental impairment that can reasonably be expected to prevent the beneficiary from pursuing post-secondary school
- The RESP has been in existence for at least 10 years and each beneficiary is at least 21 years of age and is not pursuing post-education
- The RESP has been in existence for more than 35 years
Please remember this rollover will not attract any Canada Disability Savings Grants. This AIP rollover will also reduce the RDSP contribution room, lifetime contribution limit per beneficiary is $200,000.
(2) Contribution
The contribution of the RESP would be returned to the subscriber, then it is on the discretion of the RESP subscriber whether to invest this money back into the RDSP account or not, then this amount would be eligible for matching grants consideration.
(3)Government’s monies
As for the government’s monies within the RESP account, (which may consists of the Canada Education Savings Grants and Canada Learning Bond), they would have to be pay back to the government.
Although, this rollover provides another option for parents with disabled children, there could be fees or penalty involve when transferring out your RESP account. Furthermore, please do NOT terminate the RESP on your own, you should go through this with a professional advisor, as there is a set of standard documents to do so. It is important to understand the pros and cons of the transfer before making any decision. If you are interested in more information, I welcome you to contact us.
- Disclaimer: All the details in this email are for general understanding only, not intend to provide any specific advice and could be subjected to changes without notice. Please contact us or consult with a financial professional before making any decision. Image Courtesy David Castillo Dominici/FreeDigitialPhotos.net