Cross-Border Question of the Week: What Happens to an RESP When a Family Moves to the U.S.?

Written by: Dean Moro, BComm, CIM®, CRPC™ & Carson Hamill, CIM®, CRPC™, FCSI®: Cross-Border Portfolio Managers at Snowbirds Wealth Management

It's a familiar story.

A family builds their life in Vancouver, does all the right things, opens a Registered Education Savings Plan (RESP), contributes diligently, collects the Canada Education Savings Grant (CESG) and then an opportunity arises south of the border. A job offer. A lifestyle shift. A new chapter in California.

But as with most cross-border moves, what worked perfectly in Canada can quickly become complicated once you cross into the U.S. tax system.

Let's walk through a real scenario.

The Case of Rhodes and the California Move

Meet Rhodes, a Canadian-born child whose parents set up an RESP while living in Vancouver. Over the years, they contributed regularly and received CESG matching from the government.

In May 2025, Rhodes' family relocates to California. Before leaving, they arranged for the RESP to be updated to reflect his mother as the subscriber to help simplify administration. Now settled in the U.S., Rhodes' grandmother, still living in Canada, wants to continue contributing to the RESP to support his future education.

Seems reasonable, right?

Not so fast.

The CESG Problem: Residency Matters More Than Intent

Here's the rule that governs everything:

To receive CESG, the beneficiary must be resident in Canada at the time of the contribution.

In Rhodes' case, he now lives in California and is no longer a Canadian resident. Any new contributions to the RESP will not attract CESG regardless of who makes them. Whether it's his parents, his grandmother, or anyone else, those contributions will go unmatched by the Canadian government for as long as he remains a U.S. resident.

That said, there is some reassurance when it comes to the existing plan. All previously received CESG stays in the account, and there is no clawback simply because the family moved. The RESP can continue to grow on a tax-deferred basis in Canada, and if Rhodes eventually returns and re-establishes Canadian residency, CESG eligibility can resume for future contributions, subject to the applicable annual and lifetime limits.

The Bigger Issue: The U.S. Tax Trap

This is where families are most often caught off guard.

While Canada treats the RESP as a tax-efficient education vehicle, the U.S. does not recognize it as such. From an American perspective — particularly in California — the RESP may be treated as a foreign trust depending on its structure and IRS interpretation, which creates several significant complications.

First, income earned inside the RESP (interest, dividends, capital gains) may be taxable annually in the U.S., even if no withdrawals are made.

Second, the plan may trigger reporting requirements under Forms 3520 and 3520-A — complex filings that can carry significant penalties if not handled properly.

Third, California is notorious for its nonconformity with federal tax deferral regimes, meaning that even if federal treatment is manageable, state-level taxation can still apply each year.

Should Rhodes' Family Keep Contributing?

This is where planning becomes less about rules and more about strategy.

The case for continuing contributions rests on a few things: funds remain earmarked for education, Canadian tax-deferred growth continues, and the existing CESG is preserved. But the case against is harder to ignore. Without the CESG often the primary financial rationale for the RESP in the first place the account becomes an ongoing source of U.S. tax exposure and compliance costs.

This leads to the question thoughtful advisors will ask: does it still make sense to fund an RESP when the key benefit is gone and a cross-border tax burden has been introduced?

For many families, the answer is no. For others, especially those with a genuine plan to return to Canada, it may still fit within a broader strategy. The right answer depends on the family's timeline, tax situation, and how much weight they place on keeping the account intact.

The Illusion of "Set It and Forget It"

The RESP is one of the most powerful savings tools available to Canadian families. But as Rhodes' story illustrates, its effectiveness is highly dependent on residency.

What was once a straightforward, government-supported plan can become less efficient, more complex, and potentially costly the moment a family crosses the border.

Cross-border moves don't just change where you live, they change how your financial structures behave. For families like Rhodes', this is precisely where thoughtful, proactive advice makes all the difference.

Ready to Plan Your Cross-Border Move?

If you are planning a move to the U.S. from Canada, don't leave your finances to chance. We specialize in cross-border financial planning, investments, and wealth management, working closely with your tax accountants and lawyers to ensure a fully integrated strategy.

About Snowbirds Wealth Management

Gerry Scott is a portfolio manager and founder of Snowbirds Wealth Management, an advisory firm focused on the cross-border market. Together with Dean Moro and Carson Hamill Carson Hamill, associate financial advisors with Snowbirds Wealth Management, they provide investment solutions for Americans living in Canada and Canadians residing in the United States. Licensed in both Canada and the U.S., they offer tailored strategies to help minimize tax burdens when moving assets across borders.

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