The RDSP After a Move to the US: Grants Stop, the IRS Sees a Trust, and Whether to Keep It Open

The RDSP was designed around Canadian residency and Canadian disability benefits, and a move to the US pulls out most of its supports at once. The plan's structure: a savings plan opened for a beneficiary who qualifies for the disability tax credit, funded by contributions (from the holder or anyone with permission) up to a lifetime limit, matched by the Canada Disability Savings Grant (up to 300% on the first tranche of annual contributions for lower-income families, with an annual and lifetime cap) and supplemented by the Canada Disability Savings Bond (paid without any contribution to low-income beneficiaries, with its own caps); the contributions are not deductible, the growth is tax-deferred, and withdrawals — disability assistance payments — are taxable to the beneficiary except for the contribution portion, with the ten-year rule requiring repayment of grants and bonds received in the preceding ten years if withdrawals are made (or the plan is closed, or the beneficiary loses DTC eligibility or dies) before the assistance holdback period ends. The residency conditions are strict: the beneficiary must be a resident of Canada when the plan is opened and when each contribution is made; grants and bonds are paid only for years the beneficiary is a resident of Canada; and once the beneficiary is a non-resident, no contributions may be made and no grants or bonds accrue, though the plan may remain open, its investments continue to grow tax-deferred in Canada, and withdrawals remain possible under the plan's rules. What the move does, then: it freezes the plan — no new contributions, no new grants or bonds — without closing it; and the ten-year holdback continues to run on grants and bonds already received, so a withdrawal or closure within ten years of the last grant triggers repayment of the grants and bonds received in that window (the assistance holdback amount), which for a recently funded plan can be most of its value. The US side: no treaty provision covers the RDSP (it is not a pension, and the treaty's pension article does not extend to it), so the plan's growth is not deferred for US purposes — the beneficiary, if a US person after the move, or the holder, depending on the plan's structure and the grantor-trust analysis, is taxed annually on the plan's income and gains at their character; the plan is likely a foreign trust for US purposes (an arrangement with a trustee, a beneficiary, and property held for the beneficiary's benefit), raising the Forms 3520 and 3520-A question — with the IRS's 2020 exemption for tax-favored foreign non-retirement savings trusts a candidate for relief on many practitioners' reading (the RDSP is tax-favored in Canada, has contribution limits, serves a defined purpose, and is reported to the Canadian government — the exemption's conditions), with a documented position taken either way; the government grants and bonds, when received in earlier Canadian years, are outside the US's reach for a beneficiary who was not then a US person, but grant and bond amounts inside the plan are simply plan assets to the US, taxed as they produce income; the plan's investments, typically Canadian mutual funds, are PFICs requiring Form 8621; and the plan appears on the FBAR and Form 8938 of whichever US person has a financial interest. The decision, keep or close: keeping the plan open makes sense where the assistance holdback period is running (closure triggers repayment of recent grants and bonds — the plan is worth more alive than liquidated until the ten years pass), where the family may return to Canada (residency restores contributions and grants), and where the beneficiary's disability assistance payments in retirement (from age 60, when the plan's payment schedule begins) are a planned income source — with the US reporting stack (annual income inclusion, PFIC forms, trust-form position, FBAR, 8938) priced as the cost of keeping it; closing makes sense where the holdback period has expired (no repayment), where the plan is small relative to the US reporting cost, and where the family's return to Canada is not contemplated — with the withdrawal taxed to the beneficiary in Canada (the taxable portion at the non-resident withholding rate on the growth and grant portions) and the US taxing whatever has not already been taxed annually. The middle path most families take: keep the plan open through the holdback period, minimize its US reporting cost (sell the Canadian mutual funds inside the plan and hold US-listed securities or GICs, ending the PFIC forms; take a documented position on the trust forms), and revisit at the holdback's expiry with the return-to-Canada question answered. The provincial and benefit interactions do not travel: the RDSP's exemption from provincial disability benefit asset tests is a Canadian feature that means nothing to US benefit programs, whose own asset and income tests apply to the beneficiary's US benefits (Supplemental Security Income and Medicaid have asset limits that an RDSP balance may count against, depending on the state's treatment of the trust and the beneficiary's access to it) — a question for a US special-needs planner that arrives with the move and that the RDSP's Canadian design never anticipated.

Key takeaways

• The plan freezes on non-residency: no contributions, no grants or bonds while the beneficiary is a non-resident — the plan stays open, grows tax-deferred in Canada, and withdrawals remain possible.
• The ten-year holdback keeps running: withdrawals or closure within ten years of the last grant or bond repay them — a recently funded plan is worth more open than liquidated until the window passes.
• The US has no provision for it: annual US taxation of the plan's income and gains, a likely foreign-trust characterization (with a documented position on the 2020 exemption for tax-favored savings trusts), PFIC forms for Canadian funds inside, and FBAR and 8938 reporting.
• Keep it when: the holdback is running, a return to Canada is possible, or the age-60 payment schedule is part of the beneficiary's plan — with the reporting cost priced.
• Close it when: the holdback has expired, the plan is small against its US reporting cost, and no return is contemplated — accepting Canadian non-resident withholding on the taxable portion.
• Reduce the cost either way: replace Canadian funds with US-listed holdings or GICs to end the PFIC forms; document the trust-form position; and get US benefits advice on how the plan's assets count against SSI and Medicaid limits.

The RDSP move review

Date of the last grant or bond → holdback expiry date. Plan balance and its components (contributions, grants, bonds, growth). Return-to-Canada likelihood. US person status of the beneficiary and holder after the move. The reporting stack priced (income inclusion, PFIC, trust position, FBAR, 8938). US benefit interactions flagged for a special-needs planner. Then: keep-and-minimize through the holdback, or close — decided with the family, not by default, because the grants inside a recently funded plan are the largest asset most disabled beneficiaries will ever be given.

Worked example

A Winnipeg family moves to Minneapolis with a fourteen-year-old daughter whose RDSP holds C$88,000 — C$22,000 of contributions, C$54,000 of grants and bonds over eight years, and C$12,000 of growth — invested in two Canadian balanced mutual funds. The holdback: the last grant was received the year of the move; closure or withdrawal before the tenth anniversary would repay up to C$54,000. Decision: keep the plan open — closing would forfeit most of its value. Minimize: the two mutual funds are sold inside the plan (no Canadian tax inside an RDSP) and replaced with a US-listed index fund and a GIC ladder, ending the annual Form 8621 filings; a documented position is taken that the RDSP falls within the 2020 exemption for tax-favored non-retirement savings trusts (no 3520/3520-A, with the protective alternative modeled and declined); the plan is reported on the parents' FBAR and Form 8938 (the daughter, a minor, is a US person after the move; the holder-parent's financial interest drives the reporting); the plan's modest annual income is included on the family's US return. A US special-needs planner is consulted on how the C$88,000 interacts with the daughter's future SSI eligibility — the answer shapes whether a US special-needs trust should sit alongside the RDSP by the time she is eighteen. Revisit date: the holdback expiry, ten years out, when the family will know whether they've returned to Canada (grants resume) or stayed (close, or keep for the age-60 payments). Their neighbor's version — closing the RDSP the month they moved to "simplify," repaying C$50,000 of grants, and paying non-resident withholding on the rest — simplified a plan into a fraction of itself.

Official sources

The CRA explains that a Registered Disability Savings Plan may be opened for a beneficiary eligible for the disability tax credit who is a resident of Canada, that government grants and bonds are paid only while the beneficiary is a resident of Canada, and that contributions may not be made while the beneficiary is a non-resident, although the plan may remain open. — Canada Revenue Agency, Registered Disability Savings Plan (RDSP), https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/registered-disability-savings-plan-rdsp.html

The IRS explains the reporting obligations attached to foreign trusts: a US owner of a foreign trust ensures the trust files Form 3520-A, US persons report transfers to and distributions from foreign trusts on Form 3520, and distributions of accumulated income to US beneficiaries can be subject to the accumulation distribution (throwback) rules with an interest charge. — Internal Revenue Service, Foreign trust reporting requirements and tax consequences, https://www.irs.gov/businesses/international-businesses/foreign-trust-reporting-requirements-and-tax-consequences

Practitioner note

The RDSP is the account most damaged by a move and most often closed in panic, forfeiting grants that the ten-year holdback would have preserved. Our move review computes the holdback expiry first, then keeps the plan open through it with the US reporting cost minimized — US-listed holdings replacing the PFIC funds, a documented trust-form position — and routes the family to a US special-needs planner for the benefit-eligibility question the RDSP's Canadian design never contemplated.

See also: For how the RRSP and the 401(k) compare across the border, see how the RRSP and the 401(k) compare across the border; and browse every cross-border tax topic guide, organized by situation.

Next step

Fairlight prepares the RDSP relocation review — holdback expiry and repayment exposure, the keep-or-close decision, US reporting minimization including PFIC replacement and the trust-form position, and coordination with US special-needs and benefits planning. See cross-border pricing or book a call.