Where Does RESP Withdraw by Student go on his US 1040?

[JohnSt]

Yeah, kinda messy. Thanks to you both.

[nelsona]

MGeorge, you obviously have more insight in this than I do, but take a look at

http://hodgen.com/distributions-from-fo ... paperwork/

This seems to indicate that a 3520-A from the grantor would be "adequate records" to satisfy IRS that the money has been accounted for in the foreign country.

OR, better yet, since the RESP holder can actually simply withdraws the money and gives it to the child this might simply be a GIFT under part IV, the trust is taken out of the picture completely.

As I understand it, the TRUST (RESP) only gives EAP money directly to the child.

What do you think?

[nelsona]

and if indeed this income becomes taxable thru the students submission of 3520, what does this do to the long-established strategy of putting the RESP, if at all possible, in the hands of a non-US parent or grandparent to avoid yearly 3520 filing?

Ot are we simply concluding that it is better for the US student to pay the RESP tax when he gets the money as a poor student, rather than a US parent paying the tax year-over-year?

[MGeorge]

Hi nelsona,

That is very interesting article from Hodgen Law. I have to admit is occurred to me that it should be easy enough to create a beneficiary statement based on the facts of the foreign trust owned by a non-US person.

I had a look at an RESP withdrawal form, and it seems to give the option to route the EAP money directly to the student, or to the subscriber provided that the student's signature is given on a form to ensure that the student knows the money is for him. From this - it may be difficult to pass the EAP money through the parent's bank account so that it becomes a simple gift, rather than a trust distribution. I think what is clear is that once a "withdrawal of contributions" is made, this can go to the parent, then be passed to the child as a simple gift. The RESP rules even say that the withdrawal of contributions does not even need to benefit the student.

Your second point is a good one. In practice, the student isn't likely to have much taxable income anyway. I've looked at how the accumulation distribution is treated and it is thrown back in a few years at applies at the students effective tax rates from the earlier years - I'm assuming when that student was in highschool - so in most cases there would be minimal additional tax, and thus, minimal interest. For Canadian tax purposes, this is similar to what happens to RESP income. One could even say that the tax rules are better aligned when a non-US subscriber passed RESP money to a US child. I agree that the best thing is to provide a well documented beneficiary statement as mentioned by Hodgen Law.

Best Regards.

[JohnSt]

So the "trust" component is small in the end, but the Part III paperwork is still required because there's no getting around EAP.

This thread confuses the issue for me somewhat:
http://www.justanswer.com/tax/7m6zb-que ... turns.html

I could find nothing in the instructions for form 3520-A to imply that a non-US owner would ever fill out that form, so I'm not clear on nelsona's comment above. Granted, the instructions on 3520 are so muddled for the beneficiary that it might be easier to do.

[nelsona]

Since 3520-A applies to the OWNER of a foreign trust, it should almost ALWAYS e filled by a foreign person, I would think.

In the year(s) that we needed 3520/-A for RRSPs for example, our trust management (Cdn persons) were supposed to fill 3520-A. Most of us ended up doing it ourselves. But we were a Cdn person, too.

[nelsona]

sorry, meant to say filled by a TRUSTEE of the foreign trust.

[AliM]

I am following up on advice from another thread – from nelsona and others on RESPs and US taxes and Form 3520. Here I would like to describe exactly how I will fill out forms 3520 and 3520 A in relation to an RESP where the subscriber/grantor is a non-US person and the beneficiary is a US person.

I will appreciate any comments.

My son (US/Canadian citizen) is filing a US tax return for the first time. It is a year in which there is a distribution to him from the RESP established by me, a non-US person/a Canadian. The distribution is only of the EAP (RESP earnings and grants). His plan is to file a 3520 (Part III Q 24,27 and 29 only besides page 1) and attach a “Foreign Grantor Trust Beneficiary Statementâ€￾ as provided by me (page 4 only from 3520-A).

Form 3520 – filled by my son
He will fill in page 1 as follows:
1. My son’s info

2a – Name of Foreign Trust: TD RESP by “my nameâ€￾, Grantor
2c-f – Address of Foreign Trust: the TD branch address that appears on the RESP statement
2b(1) - Employer ID #: None
2b(2) – Reference ID #: TD Plan # and Account #

3. Foreign trust Agent appointed: No
3a-g Blank
4 a-f Blank

Part I – Blank
Part II – Blank

Part III
24(a) – Dates of distributions
24(b) Cash
24 (c) $XXX (cash amount of distribution to my son)
24(d) None
24(e) None
24(f) and 27 $XXX (cash amount of distribution to my son)
25,26,28 – Blank
29- Tick “Yesâ€￾ to indicate that a “Foreign Grantor Trust Beneficiary Statementâ€￾ was received
My son will sign the form and mail it to Ogden

Page 4 of 3520-A filled by me, the grantor, as follows (I will provide this page with attachments to my son for him to attach to his 3520):

1a – Name of Foreign Trust: TD RESP by “my nameâ€￾, Grantor
1c-f – Address of Foreign Trust: the TD branch address that appears on the RESP statement
1b(1) - Employer ID #: None
1b(2) – Reference ID #: TD Plan # and Account #

2. Foreign trust Agent appointed: No
Permission to IRS or the US Beneficiary to inspect and copy records: Yes

3 – Blank

4 – Name of Trustee: Change the title to “ Name of Trustee/Account Holder/Grantor “ and provide my name and address. ID # - leave blank

5 – Dates to which the form applies: Jan 1 to Dec 31 2015
6 - Name/address of US Beneficiary – Provide my son’s info
7(a) Description of Trust Property Distributed: Cash 7(b) $ amount of distribution (only EAP was distributed to my son)

8- Attach an explanation of facts and law that establishes that the foreign trust is treated for US tax purposes as owned by another person. (I think this means that I have to prove that the RESP property – corpus- is not owned by the ‘trust’ but by a person other than the trust i.e. me, the ‘grantor’ ). I will attach a statement that reads: “The Canadian Registered Education Savings Plan, "RESP", is owned by the grantor as according to the documents that established the RESP, the grantor may withdraw the corpus at any time and revoke the arrangement. According to the documents, the grantor has the authority to appoint a different beneficiary at any time or transfer any investment income, within certain limits, to the grantor’s personal or spousal retirement savings plan or withdraw the income in the form of cash subject to Canadian taxes and certain restrictions. Contributions to the plan, the corpus, can be withdrawn at any time with no Canadian tax consequences.â€￾ And attach the appropriate RESP documents from TD, the promoter.

9 – Owner of foreign trust: Individual

I will sign and put my title as Account Holder/Grantor

I will appreciate any comments.

[AliM]

Sorry, I also wanted to say that while my son will report the RESP distribution on 3520, he will not include any of the distribution (including the grant) in his taxable income. My rationale here is that, in absence of the tax deferral that the Canadian Tax code permits for RESPs, the liability to pay taxes on the RESP income is mine (grantor's) which is evidenced by the fact that I can revoke the plan at any time and suffer the tax consequences and loss of grants. The fact that Canada does not tax some of my income is not relevant to whether US taxes that income or not. The US rules appear to suggest that so long as a trust is a "grantor trust", the grantor is responsible for the taxes and the distributions to the beneficiary are free from US taxes. Assuming all RESPs are structured like mine, it seems when you have an RESP with a non-US grantor and a US beneficiary, the income in RESP is never taxed by the US.

[MartinPDonald]

AliM,
I know time has gone by since your post, but the RESP case you described applies to me closely, and the steps you showed are really helpful. Thanks.
I would have liked to find out whether the distribution was the total amount that were withdrawn from the RESP, or was it the compounded interest (EAP?) reported to you by the Bank.

[MaggieA]

There was some discussion above of whether EAP disbursements can be paid to the subscriber or have to go direct to the student. We had a family RESP owned by my mother (Canadian citizen and resident, no US involvement). The original contributions were withdrawn long ago, residue in account was all grant and earnings, so entirely EAP. Withdrew the rest in 2017 because daughter (dual Canadian and US) had moved back to Canada in 2016 then started grad school in 2017. Eligible to use up that money, yay! Anyway, the money was paid to the subscriber, my mother, by the bank. Mom subsequently wrote a cheque to the student, my daughter. Daughter received a T slip and had to declare this income to CRA, but from IRS point of view it was just a gift from her grandmother. No US tax reporting was involved. So this is certainly possible.

[rsargant]

I don't think a non u.s subscriber/contributor withdrawing EAP and then "writing a cheque" to a u.s beneficiary child eliminates the obligation of the U.S beneficiary child to report the existence of the RESP and distribution activity on their U.S tax return . That would be great but I think everyone in this situation would be doing that if they could.

I'm in the same situation (non U.S subscriber to an RESP with U.S beneficiaries).
I'm *hoping* to claim the RESP as a foreign grantor trust with an NRA grantor in the eyes of IRS. My U.S kids will attach the beneficiary statement and 3520 to their return but won't have report the monies as taxable income or owe any throwback tax.
Still a few years off though so things could certainly change.

[Ron.Henderson]

Perhaps not the right place to ask the question, but if the dual-citizen student is going to university in Canada, why would y'all be inflicting US tax reporting on them? Particularly if they were born in Canada and had no trouble concealing US person status from financial institutions. Seems like a particularly mean bit of bad parenting.