Hi Hutcheson & Co LLP,
I am a US citizen and would like to set up RESPs for my children. Are there any tax consequences in the US if I do this?
Thanks for your question. Generally speaking we don’t recommend that any US person hold an RESP (Registered Education Savings Plan). The main reason being is that the RESP is not recognized as a tax deferred vehicle in the US. Unlike the RRSP and RRIF, whose income is not taxable in the US, so long as the proper annual forms are filed.
Since the IRS does not recognize the RESP as a tax deferred vehicle and there is no election available that allows a US person to defer the income earned in the RESP, any US person who holds RESPs is required to report and will be subject to tax in the US on all income earned in their RESPs for that tax year (i.e. interest, dividends, capital gains, etc.).
There is also significant filing requirements as the RESP is viewed as a foreign trust. Please see our article for further info.
Since you will be taxed in the US on the income earned in the account the tax advantages of the account are essentially eliminated.
This doesn’t necessarily mean that you can’t set up an RESP for your children. If you are married to a non-US person you can have them open the account. Under this option, if your non-US spouse holds the account and you do not have signing authority over the account, you would not be required to report the income earned in the account to the US.
If you require any further assistance, please contact one of our experienced professionals.
Rob Brown, CA