Accumulated Income Payments - AIP

AAA

DEFINITION of 'Accumulated Income Payments - AIP'

Money withdrawn from a Canadian Registered Education Savings Plan (RESP) if the RESP's beneficiary declines to attend college. RESPs allow contributions to grow tax-free until the money is withdrawn, at which time taxes on withdrawals tend to be low or nonexistent since students have little to no income. If the beneficiary chooses not to go to college, the investment income earned in the RESP is not forfeited as long as the subscriber (usually the student's parent) is a resident of Canada at the time of withdrawal, the RESP is at least 10 years old, and the beneficiary is at least 21. An accumulated income payment can also be made if the beneficiary is deceased. AIPs are not allowed under all types of RESPs.

INVESTOPEDIA EXPLAINS 'Accumulated Income Payments - AIP'

AIPs, if taken as cash, are taxable income and are subject to the taxpayer's regular income tax rate plus an additional federal penalty tax of 20% (12% in Quebec). To avoid the tax penalty and retain the full tax benefits of the savings, the AIP (up to $50,000) can be rolled into a Registered Retirement Savings Plan (RRSP) or a spousal RRSP if there is contribution room using Canada Customs and Revenue Agency Form T1171. An alternative to an AIP that also avoids tax penalties is to substitute another beneficiary (such as a younger sibling who plans to attend college). The RESP must be terminated by the end of February of the following year once an AIP is made.

RELATED TERMS
  1. Government Grant

    A financial award given by the federal, state or local government ...
  2. 529 Plan

    A plan that allows for the prepayment of qualified higher education ...
  3. Canada Revenue Agency - CRA

    A federal agency that collects taxes and administers tax laws ...
  4. Beneficiary

    Anybody who gains an advantage and/or profits from something. ...
  5. Full-Time Student

    A status that is important for determining dependency exemptions. ...
  6. Registered Retirement Savings Plan ...

    A legal trust registered with the Canada Revenue Agency and used ...
Related Articles
  1. Economics

    Invest In Yourself With A College Education

    Spending a few thousand dollars on school could help you earn millions more.
  2. Savings

    Choosing The Right 529 Education Savings Plan

    Before you fund one of these education-savings vehicles, be sure you know their differences.
  3. Savings

    6 Retirement Savings Tips For 45- To 54-Year-Olds

    Now is the time to kick savings into high gear. Find out how.
  4. Retirement

    Getting A Loan Without Your Parents

    Use the 5 "W"s to finance your dreams without banking on a second signature.
  5. Options & Futures

    Invest In Your Education With An RESP

    All Canadians should know the benefits of these flexible education savings plans.
  6. Something you can do for your savings and investing resolutions this year is to rely on tools already available at your workplace and take them to the max.
    Savings

    Taking Smaller And More Manageable Resolutions

    Something you can do for your savings and investing resolutions this year is to rely on tools already available at your workplace and take them to the max.
  7. Fundamental Analysis

    What is a bad interest coverage ratio?

    Understand how interest coverage ratio is calculated and what it signifies, and learn what market analysts consider to be an unacceptably low coverage ratio.
  8. Many of us fantasize about winning a big lottery jackpot. Let’s say that actually happened? What would you do with the money? How would you manage it?
    Professionals

    Tips For Managing A Cash Windfall

    Many of us fantasize about winning a big lottery jackpot. Let’s say that actually happened? What would you do with the money? How would you manage it?
  9. Fundamental Analysis

    What is the difference between a capital gearing ratio and a net gearing ratio?

    Understand the definition of gearing in the finance industry, the difference between net gearing and capital gearing ratios and how they are interpreted.
  10. Investing Basics

    What is the difference between interest coverage ratio and TIE?

    Read about the times interest earned, also known as the interest coverage ratio. Find out why this is an important ratio for investors and creditors.

You May Also Like

Hot Definitions
  1. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
  2. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  3. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  4. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  5. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  6. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
Trading Center