The Federal Budget 2023 proposes to allow divorced or separated parents to open a joint Registered Education Savings Plans (RESP) for one or more of their children or move an existing joint RESP to another RESP provider. The budget also proposes to increase certain RESP withdrawal limits with the increasing tuition cost for post-secondary education.
Before the proposed changes, only spouses or common law parents could jointly enter into an agreement with a RESP provider to open an RESP. Alternatively, if the parties opened a joint RESP during the relationship and subsequently separated, they were permitted to maintain the account post separation. However, separated parents were not permitted to open a new joint RESP post separation or to move the RESP to a different promoter.
When a RESP beneficiary enrolls in an eligible post-secondary program of study, government grants and investment income can be withdrawn from the plan as an Educational Assistance Payment (EAPs). The EAPs are taxable income for the beneficiary.
There are limits on the amount of EAPs that can be withdrawn in the first 13 consecutive weeks of an eligible program. Currently, a student in full time post-secondary school can withdraw a maximum of $5,000 in education assistance payments (EAPs) from their RESP during the first 13 weeks of their enrollment. The new budget proposes amending the Income Tax Act so that full-time students can withdraw up to $8,000 of EAPs during their first 13-week period. For part-time students, the withdrawal limit will increase from $2,000 to $4,000 per 13-week period.
Allowing separated and divorced parents to open joint RESPs will allow parents to continue to be child focused and investing in their children’s education fund for the future. The improved RESP rules may make it easier and more affordable for separated parents to save for their children’s education.