What happens to my RESP?

Once you have taken up tax residency in the US , RESPs do NOT retain their tax-deferred status with IRS and unlike RRSPs, there is no Treaty election to take to continue the deferral. As a result, you must declare the income inside of your RESPs each year until Canada Revenue Agency allows you to withdraw them for education expenses. Fortunately, Canada Revenue Agency will permit withdrawals for "qualified education expenses" including those to a US university. At withdrawal, your original contributions are withdrawn tax-free while any income is subject to the appropriate non-resident withholding. One thorny issue arises if you are a non-resident of Canada because you can no longer withdraw any earnings on your original contributions to the RESP unless it is for "qualified education expenses." This means that even if you wanted to pay the taxes and penalties, you still cannot get the earnings out . . . only your original principal can be withdrawn (tax-free). This requires some planning to ensure there will be someone in your family who can benefit from these plans otherwise you may want to consider pulling the earnings out and paying the tax and penalties before you leave Canada or they may be locked up there forever. We believe this is an oversight by the Canadian Revenue Agency in drafting the laws surrounding RESPs and non-residents of Canada but we are not sure when they will address it. You should also note that you cannot roll your RESP into a Coverdell Education Savings Account in the US .