What happens to an RESP when a family moves to the US?

But as with most cross-border moves, what worked perfectly in Canada can quickly turn out to be complicated when you enter the US tax system. Let’s undergo an actual scenario.

The Fall of Rhodes and the Move to California

Meet Rhodes, a Canadian-born child whose parents began an RESP while living in Vancouver. Over the years, they contributed recurrently and received CESG grants from the federal government.

In May 2025, Rhodes’ family moved to California. Before leaving, they updated the RESP to list his mother as a subscriber to make it easier to administer. Rhodes’ grandmother, who has now settled within the United States and still lives in Canada, desires to proceed contributing to the RESP to support his future education.

Seems reasonable, right? Not so fast.

The CESG problem: residency is more essential than intent

Here is the rule that governs all the pieces: To receive CESG, the beneficiary have to be a resident of Canada on the time of donation.

In Rhodes’ case, he isn’t any longer a resident of Canada as he lives in California. Any latest contributions to the RESP won’t attract CESG, no matter who makes them. Whether it’s his parents, his grandmother or anyone else, these contributions won’t be honored by the Canadian government so long as he stays a resident of the United States.

Still, there may be some reassurance in terms of the prevailing plan. Any previously received CESG advantages remain within the account – there is no such thing as a reclaiming simply because the family has moved. The RESP can proceed to grow in Canada on a tax-deferred basis, and when Rhodes eventually returns and reestablishes his Canadian residency, CESG eligibility for future contributions may resume (subject to applicable annual and lifelong limits).

The larger problem: the US tax trap

This is where families are most frequently surprised.

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While Canada treats the RESP as a tax-efficient education tool, the US doesn’t recognize it as such. From an American perspective, and particularly in California, the RESP could also be treated as a foreign trust depending on its structure and IRS interpretation. This results in several significant complications:

• Income (interest, dividends, capital gains) earned under the RESP could also be taxable annually within the US, even when no withdrawals are made.
• The plan may trigger reporting requirements under Forms 3520 and 3520-A, complex filings that may end up in significant penalties if handled improperly.
• California is notorious for its failure to comply with state tax deferral rules, meaning that even when the federal treatment is manageable, state taxation should still apply every year.

Should Rhodes’ family proceed to donate?

At this point, planning becomes less about rules and more about strategy. The argument for continuing the contributions relies on several aspects: the funds remain earmarked for education, tax-deferred growth in Canada continues, and the prevailing CESG stays in place.

But the case against it’s harder to disregard. Without the CESG, which is usually the first financial justification for the RESP, the account becomes a continuing source of U.S. tax risk and compliance costs.

Prudent advisors will then ask themselves: Does it still make sense to fund an RESP if the major profit is removed and a cross-border tax burden has been introduced?

For many families, the reply isn’t any. For others, especially those with an actual plan to return to Canada, it should still fit right into a larger strategy. The right answer relies on the family’s schedule, tax situation, and the way much value they place on keeping the account intact.

The illusion of “set it and forget it”

The RESP is one of the crucial powerful savings tools available to Canadian families, but as Rhodes’ story shows, its effectiveness depends heavily on residency. What was once an easy, government-backed plan can turn out to be less efficient, more complex and potentially more costly the moment a family crosses the border.

Cross-border moves not only change where you reside, but additionally the way in which your financial structures behave. This is where proactive advice makes all of the difference for families like Rhodes’.

About Carson Hamill, BBA, CIM, CRPC, FCSI

Carson is licensed in each Canada and the USA. He focuses on cross-border asset management and supports clients with financial planning and investments in each countries.