What Happens to Your Canadian RESP When You Make Aliyah?
In most cases you keep the account, but the free government money stops. You can usually hold on to an existing Registered Education Savings Plan (RESP) after the family leaves Canada, yet new Canada Education Savings Grant (CESG) deposits generally need the child (the beneficiary) to be a Canadian resident, so contributions you make once you live in Israel typically no longer attract the grant12. Some provincial incentives can even be clawed back when the beneficiary stops residing in that province.
Not advice
Almost every Canadian oleh assumes the RESP simply travels with them like a bank account. It mostly does survive the move, but three different things happen to it on three different timelines: the Canadian grant engine switches off, Israel starts looking at the account once your new-resident exemption window ends, and, if anyone in the household is a US citizen or green-card holder, the US treats the plan as a reporting and PFIC problem from day one. We keep those three pictures in separate, labelled sections below, because collapsing them into one "the tax is…" sentence is exactly how olim get this wrong.
Canada: Does the CESG Keep Paying After the Beneficiary Leaves?
Generally no. The CESG matches a percentage of what you contribute (the basic grant is 20% of annual contributions, up to defined annual and lifetime limits), but the grant is designed for Canadian-resident beneficiaries, and the residency of the child is what the program checks1. Once the child is no longer a Canadian resident, contributions you keep making typically stop earning new CESG, and the Canada Learning Bond (a separate income-tested deposit for eligible children) likewise stops accruing12.
Critically, the grant you already received and the growth it has earned generally stay inside the plan; leaving Canada does not, by itself, trigger an automatic repayment of federal CESG already in the account2. What you lose is the future match, not (usually) the past one. The practical takeaway: there is little federal upside to making fresh contributions from Israel, because the thing that made the RESP special, the 20% top-up, is no longer landing.
Are Provincial Grants Treated the Same as the Federal CESG?
Not always, and this is the trap. Provincial education-savings incentives attach their own residency conditions, and some are stricter than the federal grant. For example, provincial grants tied to residence in a specific province can become repayable to the government when the beneficiary stops being a resident of that province4. So a family that collected a province-specific grant and then made aliyah can find that particular amount has to be returned, even though the federal CESG already in the plan stays put. Check the precise terms of every incentive your plan received, because they do not all behave like the CESG.
How Are RESP Withdrawals Taxed, and to Whom?
Money comes out of an RESP in two streams. Your original contributions are returned tax-free, because you never got a deduction for putting them in. The grants plus all the investment growth come out as educational assistance payments (EAPs), and EAPs are taxable in the student'shands in the year they are paid, not the parent's3. Because a student typically has little other income, the Canadian tax on an EAP is often low or nil. That is the heart of the RESP's design: shift the taxable growth to the low-bracket student and let the contributions return untaxed.
Israel: Does the State Recognise Your RESP Shelter?
No. Israel has no RESP equivalent and does not treat the Canadian wrapper as tax-sheltered; to the Israel Tax Authority it is simply a foreign account that earns income. The relief you get is not from the RESP itself but from your status as a new resident. As an תעודת עולה (teudat oleh) holder you are generally entitled to a 10-year exemption on foreign-source income, which can cover the interest, dividends, and gains building up inside the RESP during that window8.
There is a catch worth stating plainly. From 1 January 2026, the regime shifts from "exempt and unreported" to report-but-not-tax for affected years: the foreign income can remain exempt from Israeli מס הכנסה (mas hachnasa) within the window, but it becomes reportable8. And once the 10-year window closes, the RESP's ongoing income can fall into the ordinary Israeli net, with no Canadian shelter to lean on, because Israel never recognised the shelter to begin with. The RESP is not like an Israeli קרן השתלמות (keren hishtalmut) that carries its own Israeli tax status; it is a foreign account that happens to be tax-favoured in Canada only.
US Persons: The Foreign-Trust and PFIC Double Hit
If anyone whose money or name is on the plan is a US citizen or green-card holder, an RESP is genuinely one of the most expensive accounts you can own, and the US duty does not pause because you now live in Israel7. Two separate US problems stack on top of each other.
First, the wrapper itself. The IRS commonly treats an RESP as a foreign grantor trust, which means the US-person contributor reports it on Form 3520 (transactions with a foreign trust) and Form 3520-A (annual information return of a foreign trust), with steep penalties for missing them5. The Canadian tax deferral on the growth does not carry over: the US grantor is generally taxable on the trust's income as it arises, regardless of the Canadian shelter.
Second, the contents. RESPs are usually invested in Canadian mutual funds or pooled vehicles, and to the US every non-US pooled fund is a Passive Foreign Investment Company (PFIC). Each PFIC normally requires Form 8621, and the default IRC §1291 method taxes the gains punitively, at the highest historic ordinary rates plus an interest charge, which is close to confiscatory6. So the same RESP triggers both the foreign-trust forms and a PFIC filing for whatever funds sit inside it. For a US-citizen oleh, the practical question is often not "how do I optimise this" but "should I be funding this at all," and that is a question for a US cross-border accountant before you contribute another dollar.
The one-line US warning
Worked Example: The Cohen Family, Toronto to Modiin
The Cohens make aliyah with an RESP holding CAD 40,000 in contributions plus CAD 8,000 of accumulated CESG and growth for their daughter Maya. Here is how three tax systems see the very same account.
- Canada: The plan survives the move. Because Maya is no longer a Canadian resident, fresh contributions stop earning new CESG, so the parents pause contributions1. When Maya enrols and draws an EAP, the grant-plus-growth portion is taxable to Maya as a student (often little or no tax), and the CAD 40,000 of contributions returns tax-free3.
- Israel: While the Cohens are inside their 10-year new-resident window, the income building up inside the RESP is generally exempt from Israeli tax, though from 1 January 2026 it is reportable8. After year 10, the account's ongoing income can become Israeli-taxable like any foreign holding.
- If the Cohens are US persons: The same account is a foreign grantor trust (Forms 3520 and 3520-A) and its Canadian funds are PFICs (Form 8621), so the US taxes and reports the growth that Canada and Israel both leave alone56.
Notice the inversion: the account that is a clean tax shelter for a Canadian-only Cohen family is a reporting-and-PFIC minefield for a US-citizen Cohen family, even though every number is identical. That is the whole reason a cross-border read matters.
Side-by-Side: How Three Tax Systems Treat Your RESP
| Question | Canada | Israel (as an oleh) | US person (citizen / green-card) |
|---|---|---|---|
| Can you keep the account after aliyah? | Usually yes, the plan survives the move | Yes, treated as a foreign account | Yes, but it is reportable as a foreign trust |
| Do new grants keep coming? | Generally no, CESG needs a Canadian-resident beneficiary1 | Not relevant; Israel pays no education grant | Not relevant; the US issue is reporting, not grants |
| Is the internal growth taxed each year? | No, deferred inside the plan | Exempt within the 10-year window (reportable from 1 Jan 2026)8 | Generally yes; grantor-trust income is taxable to the US owner5 |
| Who pays tax on withdrawals? | Student, on the EAP portion; contributions return tax-free3 | Depends on residency status when paid | US person, plus PFIC tax on fund gains |
| Extra forms to file? | None beyond normal RESP reporting | Foreign-income report from 1 Jan 2026 within the window | Forms 3520, 3520-A, and 862156 |
A Canadian RESP usually survives aliyah, but the free government money stops. New Canada Education Savings Grant (CESG) deposits generally need the child (the beneficiary) to be a Canadian resident, so contributions you make once the family lives in Israel typically no longer earn the 20% match. Federal CESG already in the plan generally stays put and is not clawed back just because you left, but some provincial incentives can become repayable once the beneficiary stops residing in that province. When money is withdrawn, the educational-assistance-payment portion (grants plus growth) is taxable to the student, often at little or no Canadian tax, while the original contributions return tax-free. Three tax systems read the same account differently. Israel has no RESP equivalent and does not recognise the Canadian shelter, but your new-resident status gives a 10-year exemption on foreign-source income (reportable from 1 January 2026); after the window, the RESP's income can become Israeli-taxable. For a US-citizen oleh the RESP is the worst case: the IRS commonly treats it as a foreign grantor trust (Forms 3520 and 3520-A) and the funds inside are usually PFICs (Form 8621 with punitive tax), and your US filing duty continues no matter where you live.
Usually you do not need to close it. The plan generally survives the move, and the growth and CESG already inside stay put. What changes is that fresh contributions typically stop earning new CESG once the child is no longer a Canadian resident. Whether to keep funding it depends on whether anyone in the family is a US person, where the foreign-trust and PFIC costs can outweigh the now-vanished grant, and on your Israeli position after the 10-year new-resident window. This is a decision to model with a cross-border adviser, not a default close-it answer.
Federal CESG already in the plan is generally not clawed back just because you left Canada, and it can still be paid out later as part of an educational assistance payment. The exception is certain provincial incentives, which can become repayable when the beneficiary stops residing in that province. So the answer is usually no for the federal grant, but check the terms of every provincial incentive your plan received.
Under Canadian rules, the educational-assistance-payment portion (grants plus growth) is taxable to the student in the year it is paid, and the original contributions come back tax-free. A student with little other income often pays little or no Canadian tax on the EAP. Your Israeli position depends on the family’s residency and the timing relative to the 10-year new-resident window, and a US-person student would also face the separate US analysis.
It is genuinely problematic. The IRS commonly treats an RESP as a foreign grantor trust, bringing Forms 3520 and 3520-A, and the funds inside it are typically PFICs requiring Form 8621, where the default method taxes gains punitively. Your US filing duty continues no matter where you live, and none of the Canadian or Israeli shelter helps on the US side. Get US cross-border advice before contributing further.
Israel has no RESP-style matched education-savings grant for olim to roll into. The Israeli relief that touches the RESP is your general new-resident exemption on foreign-source income for up to 10 years, which can shelter the account’s internal income from Israeli tax during the window, subject to the reporting reform from 1 January 2026. After the window, the RESP is taxed like any other foreign holding.
Not always, and this is the trap. Provincial education-savings incentives attach their own residency conditions, and some are stricter than the federal grant. Provincial grants tied to residence in a specific province, such as the British Columbia training-and-education savings grant, can become repayable to the government when the beneficiary stops being a resident of that province. A family that collected a province-specific grant and then made aliyah can find that amount has to be returned, even though the federal CESG already in the plan stays put. Check the precise terms of every incentive your plan received.
