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Money withdrawn from a Canadian Registered Education Savings Plan (RESP) if the RESP's beneficiary declines to attend college. RESPs allow contributions to grow tax-free until the money is withdrawn, at which time taxes on withdrawals tend to be low or nonexistent since students have little to no income.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.

BREAKING DOWN '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. Full-Time Student

    A status that is important for determining dependency exemptions. ...
  4. Canada Revenue Agency - CRA

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

    Anybody who gains an advantage and/or profits from something. ...
  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. Credit & Loans

    What's a Nonperforming Loan?

    A nonperforming loan is any borrowed sum where the borrower has failed to pay scheduled payments for at least 90 days.
  7. Economics

    Understanding Cost of Revenue

    The cost of revenue is the total costs a business incurs to manufacture and deliver a product or service.
  8. Economics

    Understanding Cash and Cash Equivalents

    Cash and cash equivalents are items that are either physical currency or liquid investments that can be immediately converted into cash.
  9. Economics

    Explaining Carrying Cost of Inventory

    The carrying cost of inventory is the cost a business pays for holding goods in stock.
  10. Investing

    How To Calculate Minority Interest

    Minority interest calculations require the use of minority shareholders’ percentage ownership of a subsidiary, after controlling interest is acquired.
RELATED FAQS
  1. What are some examples of general and administrative expenses?

    In accounting, general and administrative expenses represent the necessary costs to maintain a company's daily operations ... Read Full Answer >>
  2. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>
  3. How often should a small business owner go through a bank reconciliation process?

    Small business owners should go through the bank reconciliation process at least monthly, and many business consultants recommend ... Read Full Answer >>
  4. What is the difference between recurring and non-recurring general and administrative ...

    The difference between recurring and nonrecurring general and administrative expenses can best be understood as the difference ... Read Full Answer >>
  5. How can I find net margin by looking a company's financial statements?

    In finance and accounting, financial statements represent the fundamental means of analyzing a company's financial position, ... Read Full Answer >>
  6. What can working capital turnover ratios tell a trader?

    A company's working capital turnover ratio is traditionally positively correlated with business performance. A high, or better ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Financial Crisis

    A situation in which the value of financial institutions or assets drops rapidly. A financial crisis is often associated ...
  2. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
  3. Shanghai Stock Exchange

    The largest stock exchange in mainland China, the Shanghai Stock Exchange is a nonprofit organization run by the China Securities ...
  4. Dead Cat Bounce

    A temporary recovery from a prolonged decline or bear market, followed by the continuation of the downtrend. A dead cat bounce ...
  5. Bear Market

    A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment ...
  6. Alligator Spread

    An unprofitable spread that occurs as a result of large commissions charged on the transaction, regardless of favorable market ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!