Unused funds could remain in an RESP if the child doesn’t pursue or complete post-secondary education or if they graduate without needing all of the funds. If that’s the situation, you have several choices.

Support another child. If you have one or more other children under 21, the remaining funds can help cover their education costs, either through a family RESP or by transferring the funds to another child’s individual RESP.

Keep it open. You can keep an RESP open for 35 years after it was established, while investments grow tax-deferred—just in case the child decides to start or continue their education in the future.

Close the RESP. If you choose to close the plan, you must return any grant money to the government. You get back the value of your original contributions tax-free. When you receive the remainder, which is the plan’s earnings, the tax is considerable. It’s called an accumulated income payment and is taxed as regular income, then subject to a 20% penalty (12% for Quebec residents). However, you are allowed to transfer up to $50,000 of the accumulated income payment to your or your spouse’s Registered Retirement Savings Plan (RRSP). That defers the tax as regular income and avoids the penalty. You must either have contribution room available or create room by holding off on your RRSP contributions until you can make the transfer.

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