i2 Wealth Co-Founder & Cross Border Financial Planning Expert Irina Matco was recently featured in a Global News – Money 123 Newsletter Q & A.
– THE QUESTION –
“We have been saving up an RESP for my 16-year-old son for the past 10 years. He is a talented young baseball player who is hoping to head to play for a college in the U.S. after he’s done high school, studying kinesiology while he plays for a team there. We are hoping for scholarship opportunities but want to make sure we have a fallback. Is there any harm in continuing to contribute to his Canadian RESP funds; will they be applicable for a U.S. school? Is there some kind of alternative we should convert the RESP into for the U.S.? Is that even possible?”
— A Money123 reader
“That is a great question! In this situation, assuming your son is not a U.S. citizen, he will most likely move to the U.S. on a student visa, such as an F-1 visa. This visa will allow him to stay in the U.S. as long as he remains a student. For tax purposes, your son will continue to be considered a Canadian resident, even while living and studying in the U.S. Generally, he will be treated as a non-resident alien for U.S. tax purposes, meaning he will only be taxed on U.S. sourced income.
The RESP grants will remain available as long as he is attending a college or university approved by Employment and Social Development Canada (ESDC). Most U.S. colleges and universities qualify. Continuing to contribute to the RESP is beneficial, as the account is flexible, and withdrawals can be used for any education-related expenses, including room and board. There is a maximum withdrawal limit for Educational Assistance Payments (EAP) in the first 13 weeks of enrolment (first semester), which is $8,000 for full-time students or $4,000 for part-time students.
The EAP is taxable to the beneficiary — your son — and he will need to declare this income on his Canadian tax returns. This income is Canadian-sourced and, therefore, not subject to U.S. taxation.
It is not possible to convert the RESP into a U.S. equivalent education plan, such as a 529 plan, nor would your son be eligible to open a 529 plan under an F-1 visa.”
— Irina Matco, CFP® (Canada), CFP® (USA) F. Pl. , B. Comm
Click Here to Read the Entire Global – Money 123 Newsletter