529 Plan

This is our main tax information forum which deals with topics concerning Canadians living and working in the U.S., U.S. citizens contemplating working in Canada, and all aspects of Canadian and U.S. income tax and related adminstrative issues.

Moderator: Mark T Serbinski CA CPA

Post Reply
webcite_99
Posts: 46
Joined: Fri Feb 18, 2005 8:45 pm

529 Plan

Post by webcite_99 » Tue Sep 25, 2007 2:43 pm

Wife and children our dual citizens currently living in the US. If we put money into a 529 plan now and then move to Canada permanently, how would CRA treat the withdrawal if:

The child used it for an approved university like McGill? Would the answer change of the child went to an approved US school?

I am of the understanding that the IRS would not tax the money, but what about CRA?

If there is a tax, what percentage?

If there is a CRA tax, would there be a better strategy now other than putting money into the 529 plan?

Thank you.

nelsona
Posts: 16589
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona » Sun Sep 30, 2007 8:22 pm

Currently 529 are not 'sheltered' in Canada, thus no tax is due on taking the money, since tax would be paid all along (in your hands) during the time it was held.

So, no tax at the end, but tax all the time you are in Canada.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

webcite_99
Posts: 46
Joined: Fri Feb 18, 2005 8:45 pm

Post by webcite_99 » Sun Sep 30, 2007 9:41 pm

Would there be CRA tax on only realized gains or is it on the increased annual value?

Also, given your response, it seems like there be a better strategy other than putting money into the 529 plan? What would make the most sense?

nelsona
Posts: 16589
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona » Sun Sep 30, 2007 10:44 pm

It would be on the generated income, just like any other account. No account is ever taxed based on 'increase annual value'

529 makes sense if you are planning to stay in US. Even if your child studies in Canada you will pay no tax on any 529 money while YOU live in US.

If you aren't planning to live in US, then you could be investing in tax-managed funds that can be cashed after you go back to Canada, avoiding US and canada tax on thegains before the move.

I have often called this the "Cdn Roth", and is for hose who do noy get GC.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

webcite_99
Posts: 46
Joined: Fri Feb 18, 2005 8:45 pm

Post by webcite_99 » Mon Oct 01, 2007 4:30 pm

Thank you, and one more follow up:

The nuclear family will be moving to Canada, so what if a grandparent who is a US citizen and US resident (no ties to CAN) were to set up the 529 and the grandchild (who in 18 years is a dual citizen residing in CAN) went to an approved school?

Under this scenario, would CRA ever be able to tax the money -- either while it grows or when it is withdrawn and used for school?

nelsona
Posts: 16589
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona » Tue Oct 02, 2007 7:08 am

This would likely work.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

nelsona
Posts: 16589
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona » Wed Oct 03, 2007 3:26 pm

The grandparent route is also the best way for Cdns moving to US to use RESP for their kids.

It doesn't work if your kids are already in US before the paln is started, but if the grandparents start it before the kid leaves, they cab continue funding it.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

Post Reply