RESP Question

rsargant · Post by **rsargant** » Sun Dec 30, 2007 10:03 am

Hi,
Did my best to understand this from reading the forum but I'm still a bit confused.

Wife and myself are canadian, presently working in the us on L1/TN visas and expecting our first child in Feburary. Child will be born in U.S and be a U.S citizen by birth.

Grandparents in canada have offered to open an RESP for them and contribute an annual amount.

From what I can see, the RESP is not considered Tax sheltered in U.S so we would be required to report the existence of it (which sounds more complex then reporting RRSPS which I've been doing since we moved) and pay yearly U.S tax on gains until we leave the U.S and move back to canada. Is that correct?

I've seen a few posts that indicated if a grandparent opened up the account in their name, perhaps the issues above don't apply, however, since our child will be a U.S person by birth I'm not convinced that is the case.

We expect to move back to Canada permanently in 2-3 years. Since this is a pretty short time period, and I understand that the canadian government's contribution to an RESP can be "caught up" later, perhaps it is best to just defer all of this until moving back?

Thanks.

rsargant · Post by **rsargant** » Sun Dec 30, 2007 10:24 am

This may have been obvious but we intend to complete all the Canadian citenzship paperwork and obtain a SIN for the child before any RESP would be opened.

So, the baby is a dual citizen. The baby can't even be a beneficiary of an RESP until that is done (as far as I know..)

nelsona · Post by **nelsona** » Mon Dec 31, 2007 5:57 am

First, let me point out that it is no longer possible for your parents (or you for that matter) to START an RESP for your child since it won't be residing in Canada. If she was living in Canada, and your parents started an RESP and then you moved to US, this would be fine (in fact it is the best strategy).

Putting that major stumbling block aside, an RESP owned by you is not recognized as a shelter and year over year income would need to be reported and taxed in US. Your parents, not requiring to file taxes in US, would not have this problem.

nelsona · Post by **nelsona** » Mon Dec 31, 2007 6:00 am

... and there is no problem for the parents to give the money to grands to fund he resp, btw.

your only problem is no one can start the resp for your child until it resides in canada. citizenship and SIN is not the issue.

dhirenasha · Post by **dhirenasha** » Mon Dec 31, 2007 8:25 am

I don't whether I m doing it right or not by posting on the same thread or not. But my apologies if I m offending someone. It was an RESP question and thought should be post in the same thread.

Last day for RESP contributions. We just started it this year and the balance is around 1500 with both our and Govt of Canada contributions. The growth in the fund is also not that exciting. I also lookied into filling this in US under form 3520. (its a bit of hassle too, one more form to fill)

Would it be practical to dissolve the whole RESP fund and avoid filling the forms (3520) as today is the last day for RESP changes in Canada? As a USA resident am I allowed to dissolve the fund??

Any suggestions...

nelsona · Post by **nelsona** » Mon Dec 31, 2007 8:58 am

Good question.

There would undoubtedly be tax consequences in canada for doing this (as you say, you are already on the hook for US taxes).

Phone up your RESP agent.

rsargant · Post by **rsargant** » Mon Dec 31, 2007 9:04 am

Well that certainly makes this pretty simple.

We will wait until we return to Canada to open the RESP.

Thank you for the help.

nelsona · Post by **nelsona** » Mon Dec 31, 2007 9:14 am

dhirenasha, even if you sell today, you will still have to file a 3520.

dhirenasha · Post by **dhirenasha** » Mon Dec 31, 2007 9:14 am

Nelsona,

Called the agent and he confirmed that there is no growth at all. She also confirmed that she can take instructions on phone or email to dissolve the whole account. My part of the contribution would go back to chequing account and Govt of Canada contribution would go back to them. No slips would be issued. Seriously thinking of doing it in next hour or so.....

Happy new year to all the members of this forum. Wishing New year would bring good luck to you and your family....(Sydney and Auckland are in a different year, and our turn is coming soon tonite!!!)

nelsona · Post by **nelsona** » Mon Dec 31, 2007 9:56 am

Thge agent sounds correct -- since there was no growth.

The 3520 is still needed.

Arteeh · Post by **Arteeh** » Wed Jan 23, 2008 1:36 pm

Have you thougt about opening a 529 for your child in the U.S.? The investments grow tax free as long an the withdrawals are used of qualified education expenses.

For distributions to qualify, the university needs to be listed on the U.S. Department of Education's website. Many institutions are listed.

You could use the 529 while in the U.S. and then use the proceeds to send you child(ren) to university in Canada.

nelsona · Post by **nelsona** » Wed Jan 23, 2008 3:35 pm

The 'problem' with 529 is that if you return to canada, these accounts become taxable year-over-year in canada, which defeats their intent.

Arteeh · Post by **Arteeh** » Wed Jan 23, 2008 6:35 pm

So the determining factor is whether or not the account owner, usually a parent or grandparent, will continue to reside in the U.S.

If they will reside in the U.S. for the life of the account, it makes sense for Canadians to consider 529s. If they won't continue to live in the states, then probably not.

Are we on the same page?

nelsona · Post by **nelsona** » Thu Jan 24, 2008 7:01 am

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