RESP and US Tax for US-Citizen Families: What to Report

Who are the subscriber, beneficiary and promoter?

The RESP subscriber enters the savings contract; the beneficiary is the student named to receive educational assistance payments; the promoter administers the plan and issues the slips. US status matters for the subscriber, any joint subscriber and the beneficiary; check each person's citizenship, US tax residency and actual rights separately.

No binding IRS guidance says whether an RESP is a foreign trust, who is taxed on its income each year, or who files Form 3520. A non-binding Chief Counsel information letter from 2000 says only that the treaty does not defer RESP income, unlike RRSP income. Revenue Procedure 2020-17 may remove foreign-trust forms for an eligible person and qualifying arrangement; classification and exemption tests belong in Canadian registered accounts on a US return.

These Canadian roles come from CRA's RESP overview; they are not a US tax classification.

Does it matter whether the US citizen is the parent, child or grandparent?

A US-citizen subscriber raises different questions from a US-citizen child whose subscriber is outside the US tax system.

In this table, a non-US subscriber means someone who is neither a US citizen nor a US tax resident. Canadian citizenship alone does not establish that status, and a treaty tie-breaker for a dual resident does not remove that person from the FBAR or Form 3520 (IRM 4.26.16; Form 3520 instructions). A section 6013(g) election, which both spouses make by attaching a statement to a joint return no later than 3 years after filing the original return or 2 years after paying that year's tax, whichever is later, treats a nonresident spouse as a US resident for Form 8938 but not the FBAR (26 CFR 1.6013-6; Form 8938 instructions; Married to a nonresident).

If an RESP is a foreign trust, the IRS describes a US person who transfers assets to it with a US beneficiary as a potential US tax owner. Contributions, not only subscriber names, show who made a transfer (IRS foreign-trust guidance).

Does the subscriber or child report the RESP on an FBAR or Form 8938?

An RESP held with a bank or securities dealer is generally a foreign account for the FBAR and Form 8938, even when foreign-trust forms are exempt (31 CFR 1010.350(c)). Whose duty it is depends on how the account is registered. A US person who is the owner of record (named as account holder) or holds legal title has a financial interest, even for an account that benefits someone else (31 CFR 1010.350(e)(1)). If a promoter or trustee holds title, a US subscriber can still have one as grantor of a trust the subscriber owns for US tax purposes, or under another (e)(2) test. Ask the promoter whose name is on the plan.

The child's beneficiary test applies only if a trust is the account's owner of record, which is unsettled for an RESP. A specific exception applies when a US trust, trustee or agent reports the trust's accounts (31 CFR 1010.350(e)(2)(iv) and (g)(5)).

A person with signature or other authority, meaning power to control the account's funds by direct instruction to the institution, can have an FBAR duty without a financial interest. A subscriber who can tell the promoter to pay out contributions or change investments may have it (31 CFR 1010.350(f)(1)).

A child files their own FBAR; if the child cannot because of age, a parent or guardian files and signs for the child (FinCEN). The threshold applies to a person's foreign accounts together, not to each RESP (FinCEN). The FBAR is due April 15, with an automatic extension to October 15; Form 8938 goes with the income-tax return. Amounts and valuation are in Foreign account reporting.

Form 8938's exception for people who file no income-tax return does not apply to the FBAR. If the RESP is a foreign trust and the required Form 3520 (with Form 3520-A or a substitute, for an owner) is filed on time, the trust's assets or the beneficiary's interest need not be listed again on Form 8938; the form shows how many such forms were filed, and the value still counts toward the threshold. If Revenue Procedure 2020-17 removes the trust forms, that exception does not apply (Form 8938 instructions).

When do Forms 3520 and 3520-A apply, and who files?

If the RESP is a foreign trust and no exemption applies, transfers, US tax ownership and distributions can trigger different parts of Form 3520. Form 3520-A concerns a foreign trust with a US tax owner, not every plan with a US-citizen beneficiary.

The event-based duties are in the Form 3520 instructions, and a separate Form 3520 is filed for each foreign trust. Form 3520 is due April 15 for a calendar-year individual (June 15 if the filer lives and works abroad) and never later than October 15 (IRS foreign-trust guidance). The trust's own Form 3520-A is due the 15th day of the 3rd month after the trust's tax year ends, and an income-tax extension does not extend it. If the trust does not file it, the owner must file a substitute attached to Form 3520, due with that form (Form 3520-A instructions).

A US child who only receives a distribution is generally not responsible for the owner's Form 3520-A or Part II. Where no exemption applies, the child may still report the distribution in Form 3520, Part III; the instructions' filing test is receipt of a distribution, not having an income-tax return. A parent should not assume that the promoter handles the parent's US duties. Schedule B, Part III of Form 1040 also asks about foreign-trust distributions and transfers, and a transfer to a foreign trust may require Form 709 (IRS foreign-trust guidance).

Whether an RESP meets the conditions of Revenue Procedure 2020-17, which include US income-tax compliance, or can use the proposed regulations that the Form 3520-A instructions let taxpayers rely on, is unsettled; see Canadian registered accounts on a US return. Neither removes FBAR, Form 8938 or income-tax duties.

Who pays US tax on the RESP's growth each year?

If an RESP is treated as a foreign grantor trust (a trust whose funder is taxed on its income as if still owning it) with a US owner, that owner generally reports the income as it arises. The student does not automatically become the taxpayer simply because the RESP is intended for the student's education. If it is instead a foreign nongrantor trust (one no one is treated as owning), a US beneficiary generally reports the trust's income when it is distributed; the next section covers withdrawals.

The IRS's foreign-trust guidance taxes a US owner under the grantor-trust rules. That rule applies only after the plan's classification, ownership and attributable portion are established. Whether a plan is a trust, and who owns its income, is unsettled. The IRS sources cited here also do not say how the US treats the grants paid into the plan.

A non-US subscriber requires another analysis. A foreign subscriber is treated as owner of a trust only in limited cases, such as a power to take back title absolutely, and then only for the portion that power covers. A right to recover contributions therefore does not by itself make the subscriber owner of the whole plan (26 CFR 1.672(f)-3).

Funds inside an RESP can raise separate Form 8621 questions; see Funds bought outside the US.

Who is taxed when RESP money comes out?

Canada generally taxes educational assistance payments to the student and accumulated income payments to their recipient. The US result depends on the plan's US classification and who owns the income; a Canadian slip does not determine it.

The contribution rules are in CRA's RESP overview. CRA RESP payments covers T4A box 042, the AIP conditions and RRSP offset, including Canadian residence of the subscriber receiving it, and the enrolment rules an EAP needs. An AIP moved into an RRSP also needs the RRSP's US treatment: Canadian registered accounts on a US return.

An EAP to a Canadian-nonresident student can instead attract Canadian non-resident tax of 25%, withheld by the payer and reported on an NR4 slip (income code 24). Confirm any treaty relief and the promoter's practice before withdrawal (Income Tax Act, paragraph 212(1)(r), CRA NR4 guide).

For a US beneficiary, documented grantor-trust payments are treated as coming from the owner; a payment that qualifies as a gift may be excluded from income. Foreign nongrantor-trust payments can carry current or accumulated income, with additional tax and interest issues for accumulated income (Form 3520 instructions, Part III).

Canadian tax on a student's EAP does not automatically offset US tax owed by a different person or for a different year; the foreign tax credit has its own conditions.

What happens to the grants and the US reporting if we move to the US with the RESP?

Moving does not by itself close an RESP, but it changes what the plan can accept and pay. CRA states no residency requirement for subscribers; its residency tests apply to the beneficiary and, for one payment type, the subscriber:

• A plan accepts a contribution only for a beneficiary resident in Canada (CRA administrator guidance).
• The Canada Education Savings Grant (CESG) and Canada Learning Bond (CLB) are paid within an EAP only to a beneficiary resident in Canada; provincial incentives have their own residency rules (CRA RESP guide).
• An AIP needs a subscriber resident in Canada (CRA RESP payments).
• A student no longer resident in Canada can face Canadian non-resident tax on an EAP, as covered above.

Ask the promoter how grant balances are treated if the beneficiary's residence changes, and to separate them from contributions and earnings before any withdrawal.

A non-US parent who becomes a US tax resident can start owing FBAR and Form 8938 reporting for that year (31 CFR 1010.350(b); Form 8938 instructions). If the RESP is a foreign trust, Forms 3520 and 3520-A can follow, and a previously non-US subscriber can face the pre-immigration rule: transfers made within five years before the residency starting date, the day the person becomes a US tax resident, can be treated as made on that date (26 CFR 1.679-5).

For the move itself, including residency dates and what to file in each country, see Moving from Canada to the US. State treatment of an RESP needs its own review; the guide on state tax on RRSPs and TFSAs covers those two accounts only.

If one parent is American, what does choosing the subscriber change, and do the grants change?

Choosing a subscriber changes legal control and the US questions attached to that person. It does not remove the need to trace funding or review a US child's distributions.

CRA permits spouses or common-law partners to be joint original subscribers, subject to plan rules (CRA: Who can be a subscriber). For the FBAR, each US person in whose name an account is maintained has a financial interest (31 CFR 1010.350(e)(1)), and each joint owner reports the entire value (FinCEN). One spouse's timely FBAR can cover the other if all the other's reportable accounts are joint with the filer and both sign Form 114a (FBAR instructions).

On the grants, the residency tests in the move section above apply to the beneficiary; CRA sets no residency requirement for subscribers.

If the RESP is a foreign trust, money a US person supplies through a non-US spouse's name can still count as that person's transfer: the Form 3520 instructions treat an indirect transfer structured with a principal purpose of avoiding section 679 or 6048 as a gratuitous transfer (Form 3520 instructions). Changing an existing subscriber is also restricted under Canadian rules; ask the promoter whether a permitted transfer is needed instead (CRA administrator guidance). Subscriber rights can pass after a relationship breakdown or a subscriber's death (CRA), which can change who has the FBAR interest.

What if we never reported the RESP in past years?

Review missing income and missing forms separately before submitting corrections. Possible trust-form relief does not resolve omitted FBARs, Form 8938 or taxable income.

Where trust reporting was required, the initial penalty is the greater of US$10,000 or 35% of the property transferred or distributions received (Parts I and III), or 5% of the trust assets treated as owned when Form 3520-A or its statements are missing, which falls on the US owner. Reasonable cause can relieve it (Form 3520 instructions). A missing Form 3520, 3520-A or 8938 also keeps the related assessment period open until three years after the information is furnished (26 U.S.C. 6501(c)(8)). For the correction route and order of filings, use Missed foreign-account and registered-plan forms; FBAR and Form 8938 penalties are in Foreign account reporting.

What RESP records should we keep?

Keep enough information to establish each person's rights, each payment's source and income already reported. A year-end balance alone cannot answer those questions.

Gather:

• The original agreement, trust declaration, subscriber changes and beneficiary designations.
• Citizenship, US tax-residency and Canadian residence histories for subscribers and beneficiaries.
• Statements showing annual maximum values and year-end balances.
• Contributions by date, source of funds and beneficiary allocation.
• Separate grant, earnings and contribution balances; investment trades and distributions.
• Withdrawal instructions, recipients, T4A or NR4 slips and any US owner or beneficiary statements.
• Prior Canadian and US returns, foreign-account reports and the written basis for any exemption claimed.

The IRS expects the trust to furnish owner and beneficiary statements (foreign-trust reporting guidance). Without a complete nongrantor-trust beneficiary statement, a distribution goes on the default calculation, not the actual one (Form 3520 instructions, Part III). FBAR account records must be kept 5 years from April 15 of the year after the year reported (FBAR instructions); keep the plan's history through withdrawal, because a missing trust form holds the assessment period open.

Example

Illustrative only. All amounts are Canadian dollars; US reporting would require conversion to US dollars.

A US-citizen parent is the sole subscriber, and the dual-citizen child lives in Canada. The RESP contains C$30,000 of contributions and C$10,000 of grants and earnings. The promoter pays the student C$5,000 of contributions and a C$5,000 EAP.

The parent's US filings would then be the FBAR and Form 8938 when their thresholds are met, plus Form 3520, Part II, and Form 3520-A unless relief applies; each year the parent contributed would also have added Part I. If the non-US parent had been the subscriber and funder, the ownership analysis would change; the child's reporting would still need review.

Different for you?

• The RESP's US classification or reporting exemption is unclear: see Canadian registered accounts on a US return.
• The subscriber and child have different US status, you are moving or changing subscribers, or the plan has substantial accumulated earnings: arrange a cross-border tax review of ownership and withdrawals; bring the agreement, funding history, statements, residence dates, proposed changes and grant balances.
• The RESP was omitted in earlier years: see Missed foreign-account and registered-plan forms.
• You need the family's annual filing picture: see Americans living in Canada.
• State taxation is part of the move: State tax on RRSPs and TFSAs does not cover RESPs; raise the RESP in the same review.