What happens to an RESP when a family moves to the U.S.?

A family builds a life in Vancouver. They open an RESP, contribute diligently and collect the Canada Education Savings Grant (CESG). Then an opportunity comes up 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 get complicated once you cross into the U.S. tax system.

Let’s walk through a real scenario.

Rhodes is a Canadian-born child whose parents did all the right things. Over the years, they contributed regularly to Rhodes’ RESP and received CESG matching from the government.

In May 2025, the family relocated to California. Before leaving, they updated their RESP to make his mother the subscriber. That helped simplify administration. Now settled in the U.S., Rhodes’ grandmother in Canada wanted to continue contributing to the RESP.

Seems reasonable, right? Not so fast.

Residency matters

Here’s the rule that governs everything: To receive CESG, the beneficiary must be resident in Canada at the time of the contribution.

Rhodes lives in California; he is no longer a Canadian resident. Any new contributions to the RESP will not attract CESG dollars 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.

There is some good news. 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 returns and re-establishes Canadian residency, CESG eligibility can resume for future contributions, subject to the applicable annual and lifetime limits.

The U.S. tax trap

This is where families like Rhodes’ 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 Internal Revenue Service (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 IRS forms 3520 and 3520-A — complex filings that can carry significant penalties if not completed 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.

Keep contributing?

Should Rhodes’ family keep contributing? This is where planning becomes less about rules and more about strategy.

The case for continuing contributions rests on three things: funds remain earmarked for education, Canadian tax-deferred growth continues and the existing CESG is preserved.

But the case against is tough 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.

Many families decide to stop contributing to the RESP. Others, especially those with a genuine plan to return to Canada, may decide it still fits within a broader strategy.

The right answer depends on the family’s timeline, tax situation and how important it is to them to keep the account intact.

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.