Families with cross-border ties—especially those with children studying internationally between the U.S. and Canada—face unique challenges and opportunities when saving for education. Understanding the tax rules, government incentives, and optimal strategies for 529 plans (U.S.) and RESPs (Canada) can maximize the value of your post-secondary savings. Here’s a focused guide to the most tax-efficient strategies parents of international students can use.
Understanding the Basics
529 Plans and Registered Education Savings Plans (RESPs) are the premier tax-favored vehicles for education savings in the U.S. and Canada, respectively. However, each country’s government treats the other plan differently for tax and reporting purposes—a critical factor for cross-border families. The CRA taxes 529 plan earnings as foreign income. The IRS taxes RESP earnings as foreign income.
What Makes 529 and RESP Plans Different?
| Feature | 529 Plan | RESP |
| Level of Education | K-12 tuition ($20,000/year 2026) and post-secondary | Only post-secondary education |
| Tax Growth | Tax-free in the U.S. for qualified use | Tax-deferred growth; the student pays taxes on investment income and CESG grants when withdrawn (EAPs). Parents contributions are tax-free |
| Government Incentives | No, although some states offer tax credits | Yes, 20% matching through the CESG up to a lifetime of $7,200 CAD per child |
| Annual Contribution Limit | None, but subject to federal gift tax exemption ($19,000/person, $38,000/couple in 2025) | No annual limit; $50,000 CAD per child; CESG capped at $2,500/year contribution |
| Use for Foreign Schools | Yes, if the school is Title IV eligible | Yes, if the school is post-secondary and meets CRA requirements |
| Taxation Abroad | Investment income taxable in Canada with possible deemed resident trust reporting | Investment income taxable in the U.S., potentially as a foreign trust, |
| Reporting Requirements | T1135, possible T3 | FBAR, possible 3520 |
Cross-border Tax Challenges
- 529 plan gains are taxable in Canada upon withdrawal as foreign income, losing U.S. tax-free status. RESP growth and grants are taxable in the U.S., potentially requiring complex IRS reporting (e.g., Form 3520 for foreign trusts).
- Earnings in a RESP and grants are taxable to U.S. residents; therefore, the IRS may treat the account as a “foreign trust” with burdensome reporting.
- Residency and citizenship of parents and students determine which plan’s benefits and pitfalls apply.
- Reporting requirements, such as Canada’s T1135 for 529s (foreign reportable accounts totalling > $100,000 CAD) and U.S. FBAR (foreign reportable accounts totalling > $10,000 USD)/Form 8938 for RESPs, add complexity.
- Canadian students claim their tuition and credits on their own return, whether they are self-supporting or not. The parents of U.S. students claim the American Opportunity Tax Credit (AOTC) unless the child is 24 years old or self supporting.
Tax-efficient Strategies
Pick the right plan for your tax residency
If you live in the U.S. prioritize contributing towards a 529 plan. If you live in Canada prioritize contributing towards a RESP.
Don’t overlook eligible foreign institutions
Many Canadian universities qualify as “eligible institutions” for U.S. 529 tax-free withdrawals and still claim the American Opportunity (AOTC) or Lifetime Learning tax credits (LLC). Most U.S. post-secondary schools qualify for Canadian RESP withdrawals as Education Assistance Payments “EAPs”.
Ownership and timing to preserve the tax benefits
If relocating to Canada, have your 529 plan ownership transferred to a U.S.-based family member before establishing Canadian tax residency to avoid Canadian taxation on the 529 plan’s growth. If you are relocating to the U.S., transfer ownership of the RESP to a Canadian resident family member. Consider withdrawing RESP EAPs (grant + earnings) first to minimize U.S. tax impact. For existing accounts, you may want to consider a gradual withdrawal of contributions to help spread out the U.S. tax impact.
Maximize tuition tax credits
Canadian residents attending eligible U.S. schools can claim a non-refundable tax credit for tuition paid if they obtain the appropriate T-slip (TL11-D). Tuition tax credits help reduce or eliminate taxes owed to Canada and will be carried forward until used up. The U.S. citizens parents of children attending a Title IV Canadian university may claim the American Opportunity Tax Credit ($2,500/year for the first four calendar years of post-secondary education) or Lifetime Learning Credit ($2,000/year) even on certain foreign tuitions. Always check for eligibility. Canadian tuition credits (non-refundable, up to $5,000 transferable to parents) reduce taxes. AOTC/LLC applies only to Title IV-eligible Canadian schools. A Title IV school is one whose students are eligible to participate in federal student aid programs (FAFSA).
Use non-registered/non-qualified accounts for flexibility
If you are not certain where your child is likely to attend school, there is always the option to save inside a regular investment account. Canadians can also take advantage of the flexibility of their Tax-Free Savings Accounts (TFSA) as an alternative post secondary savings vehicle. TFSAs offer tax-free growth (2025 limit: $7,000 CAD) but no CESG, ideal for flexible savings. Earnings in a TFSA are taxable annually on a U.S. tax return.
Practical Scenarios
Scenario 1: U.S. Citizen parent, with a Canadian resident child wants to attend a U.S. university
- 529 growth is taxable in Canada unless ownership is transferred prior to relocating.
- RESP can fund U.S. post-secondary tuition, but growth and government grants are tax-deferred and taxed to the student at withdrawal. Parent contributions to RESPs are withdrawn tax-free, enhancing tax efficiency.
Consider transferring the 529 plan to a U.S.-based family member prior to relocating. Once in Canada, contribute to a RESP and maximize the 20% government grant (CESG). Supplement additional post-secondary expenses with non-registered account savings.
Scenario 2: Canadian parent moving to the U.S., and their child wants to attend a Canadian university
- RESP earnings become reportable to the IRS and taxable. New contributions are discouraged once U.S. residency is established.
- U.S. 529 plans can be used at major Canadian universities (Check Title IV eligibility).
Consider topping up any unused RESP amounts prior to relocating to the U.S. Once in the U.S., contribute towards a 529 plan.
Common Pitfalls & Pro Tips
- PFIC (Passive Foreign Investment Company) rules: Investing in Canadian mutual funds or ETFs inside an RESP or TFSA can trigger punitive U.S. tax rules. Invest in a PFIC compliant investment strategy.
- Withdraw RESP EAP money first: Because the CESG is taxable in the student’s income (which is usually low to non-existent), this creates a more tax efficient withdrawal when in later education years, the likelihood of the student working or entering a cooperative work program is higher. Secondly, should the student decide to not continue their post secondary education, you have used the grant money first. Be aware that the government grant money can only be used when enrolled in an eligible post secondary program.
- RESP withdrawals offer flexibility: As the RESP plan administrator, the contributing parent has discretion on how best to utilize the investment funds. Funds can be used for the purchase of a new computer, textbooks, or living accommodations and does not have to be used solely for post secondary tuition costs.
- Family RESP options: When possible, set up a family RESP so that if one child decides not to pursue post secondary education, their siblings can utilize their parent’s contributions. This offers greater flexibility for the entire family. The child who decides not to pursue post secondary education has 36 years from when the RESP was first opened to make this decision. The RESP can remain open until that time. Unused CESG money is returned if not used for post-secondary education.
- Confirm post secondary institution eligibility: Not all post secondary schools qualify. Check with the institution to ensure that they meet the specific criteria to use the RESP or 529 funds. This is especially true when attending a foreign university.
- The U.S. SECURE 2.0 Act allows up to a lifetime maximum of $35,000 in 529 rollovers to Roth IRAs. This is a tax-efficient option for unused 529 funds. RESPs have a similar feature where after CESG money is returned to the government, your contributions and earnings can be rolled over into a RRSP account.
- Consult a cross-border advisor: Rules and regulations change and your family dynamics may evolve. Always consult with a cross-border advisor prior to pursuing a course of action regarding your post secondary education savings plan.
Navigating the complexities of 529 plans and RESPs can be daunting, especially for families managing cross-border financial goals. At Cardinal Point Wealth Management, our team of experienced advisors specializes in U.S.-Canada financial planning, helping you optimize education savings and tax strategies tailored to your unique circumstances. Whether you’re balancing dual residences, planning for your child’s future, or seeking to maximize your wealth, cross-border solutions are at the heart of what we do. Contact us today to schedule a consultation and discover how we can guide you toward a secure financial future.