Accumulated Income Payments - AIP

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Dictionary Says

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Money withdrawn from a Canadian Registered Education Savings Plan (RESP) if the RESP's beneficiary declines to attend college. RESPs allow contributions to grow tax-free until the money is withdrawn, at which time taxes on withdrawals tend to be low or nonexistent since students have little to no income.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

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.

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