RESP After Moving to the US: Keep, Collapse or Wait

RESP after moving to the US: keep, collapse or wait?

Keeping the RESP is usually the only path that can still use the growth for school, but it brings Canadian withholding and yearly US reporting. Collapsing returns contributions without Canadian tax, yet the growth cannot be paid to the subscriber while the subscriber lives outside Canada. Leaving Canada does not trigger departure tax on the RESP (section 128.1(10), excluded right or interest).

The case is not simple if the plan holds large growth, the child is close to university age, the family may move back, or a parent is a US citizen. Each path is hard to undo once money leaves the plan.

Gather before deciding:

• The latest statement split into contributions, grants (federal and provincial) and growth.
• The date the plan was opened and its type (individual, family or group).
• Each beneficiary's age and expected start date at school.
• The subscriber's and student's residence dates in each country.
• Past US returns and foreign-account reports that included the plan.

Can I use my RESP for a US university?

Usually yes, if the plan's terms allow it. A US school qualifies if the student is enrolled in a course of at least 13 consecutive weeks at a university, college or other post-secondary institution, or full time in a course of at least 3 consecutive weeks at a university (Income Tax Act, section 146.1(1); CRA RESP payments).

EAPs are capped at C$8,000 for the first 13 consecutive weeks of full-time study (no cap after that) and C$4,000 for the 13-week period ending at each payment in part-time study, and can be paid up to six months after studies end (CRA). Plan payments across the program so the growth comes out in time.

The grants are the catch. CRA states that a beneficiary must be resident in Canada to receive the Canada Education Savings Grant or Canada Learning Bond as part of an EAP (CRA). A student living in the US can receive the growth, not the grants. Provincial incentives have their own rules. The Canadian rules for any country are in RESP when you move abroad.

Who pays tax on an RESP payment to a student living in the US?

Canada taxes the student. An EAP paid to a non-resident falls under Part XIII, at a statutory rate of 25%, withheld by the promoter (Income Tax Act, paragraph 212(1)(r)). The student receives a slip for it; see the non-resident withholding slip. The withholding is the final Canadian tax: the section 217 election that lets some non-residents file a return and recover withholding does not cover RESP payments (section 217).

Whether the Canada–US treaty lowers that rate is unsettled. Article XXII(2) caps Canadian tax on income distributed by a Canadian trust to a US resident at 15%, and exempts the part paid out of income arising outside Canada (treaty text). But Canada taxes an EAP under paragraph 212(1)(r), not as ordinary trust income under paragraph 212(1)(c), and neither the CRA's guidance on treaty rates (IC76-12R8) nor the treaty says whether an EAP counts as income distributed by a trust under Article XXII(2). Ask the promoter which rate it applies and what form it needs before the first payment.

On the US side, who is taxed and whether the Canadian tax can be credited depends on the plan's US classification; the US-family RESP guide covers it.

What happens if we collapse the RESP after moving to the US?

Contributions come back to the subscriber without Canadian tax (RC4092). If no beneficiary is eligible for an EAP at the time, the promoter repays grants in proportion to the contributions taken out; if the child is already enrolled, the withdrawal alone does not, though grants still cannot be paid to a non-resident student and go back when the plan ends (Canada Education Savings Regulations, sections 10(3) and 11).

The growth stays in the plan only while the plan stays open. Closing it while no AIP is possible sends the growth to a designated educational institution in Canada (CRA; section 146.1(2)(a)). To keep the growth, withdraw contributions and leave the plan open.

The growth can leave as an AIP only to a subscriber resident in Canada, and only after the year that includes the plan's 9th anniversary, with every beneficiary is at least 21 and not eligible for an EAP, or in the plan's final year, or after every beneficiary has died (section 146.1(2)(d.1)). The CRA can waive the age and 9-year tests for a beneficiary with a severe and prolonged mental impairment. A subscriber who has become a non-resident of Canada does not meet the residence test. If the plan has a joint subscriber who still lives in Canada, that subscriber alone can receive the AIP once the other conditions are met. Otherwise the growth waits for one of these:

• An EAP to a beneficiary who studies.
• The subscriber's return to Canada while the AIP conditions are met.
• A rollover to the beneficiary's Registered Disability Savings Plan, if the beneficiary is eligible for the disability tax credit and resident in Canada (RC4092).
• The plan's deadline: most plans must end by the end of the year that includes their 35th anniversary (section 146.1(2)(i)). Growth still left then generally goes to a designated educational institution in Canada; the plan's terms say how.

Should we collapse the RESP before we move instead?

Collapsing before the move releases the growth only if the AIP conditions already hold. A resident subscriber can take the growth as an AIP after the year that includes the plan's 9th anniversary, if every beneficiary is 21 or older and not eligible for an EAP (CRA). For a family with a child under 21, collapsing before the move frees the contributions and returns the grants; the growth cannot be paid to the subscriber either way, though it can still go to the student as EAPs.

Where the AIP is available, it is taxed to the subscriber as regular income plus an additional tax of 20% (12% for residents of Quebec). RRSP contributions can reduce the amount subject to tax, up to a lifetime C$50,000, if the subscriber has RRSP room (CRA). Weigh that cost against what the growth could fund as EAPs, and against grants lost either way to a student who is not resident in Canada.

What does keeping an RESP cost each year in US reporting?

A US-resident subscriber may need to report the plan on the FBAR when total foreign accounts pass US$10,000, and on Form 8938 when foreign assets pass its threshold, which depends on filing status (US$100,000 at year end or US$150,000 at any time for a married couple filing jointly in the US; US$50,000 or US$75,000 for a single filer). If the RESP is treated as a foreign trust, Forms 3520 and 3520-A may apply unless an exemption covers it; the Form 3520 instructions point to Revenue Procedure 2020-17 and proposed regulations for tax-favored education trusts. Who files what is in the US-family RESP guide; the first filings after the move are in first FBAR after moving from Canada and the foreign asset report after moving.

Can an RESP be rolled into a US college savings plan?

No. The Canadian rules provide transfers only to another RESP and a rollover to a Registered Disability Savings Plan (CRA). Moving money to a US plan is two steps: take what can come out of the RESP, with its Canadian result, then contribute to a US plan under that plan's own rules. The growth still cannot come out to a non-resident subscriber, so only contributions can make that trip.

What if we move back to Canada before the child studies?

Contributions can resume once the beneficiary is resident in Canada again and has a Social Insurance Number (section 146.1(2)(g.3)), and a resident student can receive grants in an EAP. If only the child returns to study, grants can be paid in an EAP only if the student is resident in Canada when it is paid, which depends on the student's ties, not enrolment alone. A resident subscriber can also take an AIP once its conditions are met. The steps on return are in returning to Canada after years abroad.

What should I ask the RESP provider before deciding?

Get these answers in writing before any withdrawal:

1. The balance split into contributions, federal grants, provincial grants and growth.
2. The plan's opening date, type and final termination year.
3. Whether it pays EAPs to a non-resident student, which withholding rate it applies, what proof of enrolment it needs, and how it schedules EAPs across the program.
4. How and when grants are returned if the beneficiary is not resident in Canada.
5. Whether withdrawing contributions now triggers any grant repayment.
6. What the plan's terms do with growth left when the plan ends.

Example

Illustrative only. All figures are Canadian dollars. The family lives in Ohio; the RESP holds C$60,000: C$35,000 of contributions, C$7,000 of grants and C$18,000 of growth. The child is 16 and will start at a US university in two years.

Keep it for the US university

• Years 1–2: nothing comes out. The subscriber files the FBAR (the plan alone passes its threshold) and, if thresholds are met, Form 8938 each year, plus any trust forms that apply.
• Year 3: the student enrolls full time. The C$18,000 growth is paid as EAPs over the studies, and the promoter withholds Canadian non-resident tax from each payment: C$4,500 at the statutory 25%, or C$2,700 if the promoter applies the 15% treaty cap. The C$7,000 of grants cannot be paid to the non-resident student and goes back. The C$35,000 of contributions can be returned to the subscriber or paid to the student without Canadian tax.

Collapse a month before leaving Canada

The child is 16, so the AIP conditions are not met. The C$35,000 comes back tax-free, the C$7,000 of grants goes back, and the C$18,000 growth cannot be paid to the subscriber. Had the plan been 12 years old and the child 22 and not studying, the C$18,000 could have been taken as an AIP: added to the subscriber's income at regular rates, plus C$3,600 of additional tax (20% outside Quebec), less any part moved into the subscriber's RRSP within the limit.

Withdraw contributions after the move

The C$35,000 comes back tax-free and, with the 16-year-old not yet enrolled, the C$7,000 of grants goes back. The plan stays open, so the C$18,000 growth stays in it (closing the plan would send it to a designated educational institution in Canada), with yearly US reporting, until the child studies, the family returns to Canada and meets the AIP conditions, or the plan reaches its deadline.

Different for you?

• Large growth, a child near university age, or a possible return to Canada: the order of withdrawals and the move date change the result in both countries. A cross-border tax review can weigh the paths; bring the provider's answers above, residence dates and past returns.
• A parent or the child is a US citizen, or you need to know who is taxed on growth and withdrawals: see RESP and US tax for US-citizen families.
• The RESP was left off past US filings: see missed FBAR or registered-plan forms.
• Other Canadian accounts moved with you: see Canadian registered accounts on a US return.
• You are still planning the move: see moving from Canada to the US.