Canadian RRSP

For investors outside the US. Personal investments, personal finance, investing news and theory.
Sister forums: Canada, Spain (en español)
---------------
Post Reply
Topic Author
airahcaz
Posts: 1525
Joined: Sat Oct 31, 2009 3:37 pm

Canadian RRSP

Post by airahcaz »

Hi - my wife has an RRSP in Canada but will not be retiring there, she will retire here. Can it be moved to Fidelity, etc? How? Tax consequences?
1) Invest you must 2) Time is your friend 3) Impulse is your enemy 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course. (Plagiarized, but worth stealing)
Random Poster
Posts: 3314
Joined: Wed Feb 03, 2010 9:17 am

Re: Canadian RRSP

Post by Random Poster »

You might get a knowledgeable response to your question here:

http://www.financialwebring.org/forum/

where there are a few Canadian-based investors. Not a lot of traffic at the site, though, so a response might take a while.
DSInvestor
Posts: 11647
Joined: Sat Oct 04, 2008 11:42 am

Re: Canadian RRSP

Post by DSInvestor »

Link to page called Canadian RRSP held by us residents and citizens which discusses cross border tax treatment of RRSP
http://www.serbinski.com/working-in-usa/rrsp.shtml
Consequences of moving

No rollovers of Canadian RRSP’s to U.S. IRA’s or similar plans are advisable, since such a transfer would be considered a distribution under Canadian law, and would trigger taxation in both countries under the Convention. Accordingly, persons moving to the U.S. after a work period in Canada should consider leaving the RRSP intact, and drawing funds from the plan only upon retirement or as required by Canadian law.
Wiki
Topic Author
airahcaz
Posts: 1525
Joined: Sat Oct 31, 2009 3:37 pm

Re: Canadian RRSP

Post by airahcaz »

You guys are good, I searched, but can't thank you enough. Leave it there I suppose, oh well.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course. (Plagiarized, but worth stealing)
DSInvestor
Posts: 11647
Joined: Sat Oct 04, 2008 11:42 am

Re: Canadian RRSP

Post by DSInvestor »

Where does she hold her RRSP? I have looked at some RRSP for my Canadian friends and was shocked to see how high the MERs were ~2.75%. Hopefully her plan has lower costs. I helped my friends find some low cost options like TD e-series mutual funds which can be used to build a nice boglehead style portfolio. I helped her transfer from a high cost plan to an RRSP at TD. TD offered a rebate to cover account closing fees from the other plan. That was several years ago. There may be more low cost options available today like Canadian domiciled ETFs (ishares or vanguard) or even US based ETFs. Some RRSP accounts allow trading on US stock exchanges so ETFs like VTI (total stock), VEU (FTSE all world ex-us), VXUS (total international), BND (total bond).
Wiki
Topic Author
airahcaz
Posts: 1525
Joined: Sat Oct 31, 2009 3:37 pm

Re: Canadian RRSP

Post by airahcaz »

Exactly what I did. TD with a low MER ETF.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course. (Plagiarized, but worth stealing)
Alan S.
Posts: 12669
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: Canadian RRSP

Post by Alan S. »

I would phrase the answer differently - "not only is it not advisable, it is not eligible to be rolled into a US IRA account". If done, it would be an excess IRA contribution.
Topic Author
airahcaz
Posts: 1525
Joined: Sat Oct 31, 2009 3:37 pm

Re: Canadian RRSP

Post by airahcaz »

With no Canadian income now or in the future, is there a scenario where it makes sense to withdraw it now and pay the taxes and invest the proceeds in a US account?
1) Invest you must 2) Time is your friend 3) Impulse is your enemy 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course. (Plagiarized, but worth stealing)
User avatar
PriceOfFreedom
Posts: 91
Joined: Mon Sep 03, 2012 12:53 pm

Re: Canadian RRSP

Post by PriceOfFreedom »

airahcaz, as others have already stated, the RRSP cannot be "rolled over" into an IRA. I'm a dual citizen (moved from Canada to the States some years ago) and have an RRSP (and LIRA).

Some points to note:
1. The RRSP proceeds are taxable in Canada when withdrawn at a flat 25% tax rate (that should be withheld by your Canadian RSP custodian on withdrawal). Once that tax is withheld, you owe no further tax to Canada. You can withdraw any amount, up to the total plan value (although, see note 1 below).
2. If she converts the RRSP to a RRIF, there will be minimum annual withdrawals, but she can also still withdraw a larger amount up to the total value. If she withdraws less than a certain limit (age-defined, there is a formula for this), it will be taxed in Canada at only a 15% rate due to a tax treaty with the US.
3. If she has no (or very little) world income, she can file a Canadian tax 217 election to reduce her Canadian withholding tax further.
3. For US tax purposes, the RRSP will have a "basis" based on the US $ acquisition cost of the RRSP holdings in the account when she moved to the US. Again, this is not a trivial computation, and is based on the US $ acquisition costs of the holdings in the account that existed when she moved. This basis will not be taxed in the US when she makes withdrawals. You can use a spreadsheet to compute the portion of the basis "consumed" for each year's withdrawals.
4. She will pay US income tax on these RRSP (or RRIF) withdrawals (but the portion which is "basis" will not be taxed in the US). Depending on her US income (or both of your US income if filing jointly), you will get a US credit for some (or all) of your Canadian taxes withheld. You will need to complete form 1116 on your US tax return to get this as a US tax credit.

A couple of other items (notes):
1. I assume you are talking about a non-locked in vehicle (RRSP rather than LIRA - that is a different animal for withdrawal flexibility and has no US "basis").
2. I hope you have been filling out form 8891 and (more recently) form 8938 each year you have been in the US with your 1040 return. Also, you need to have been filing TD F 90-22.1 with the US Treasury declaring foreign assets. There are incredibly onerous IRS penalties for not doing this every year.

You may want to check out the message board on http://forums.serbinski.com for lots of information about these and other Canada / US tax issues (Canada and United States Tax & Accounting Issues forum) for more information.
User avatar
PriceOfFreedom
Posts: 91
Joined: Mon Sep 03, 2012 12:53 pm

Re: Canadian RRSP

Post by PriceOfFreedom »

One more point, I assume that your wife is a non-resident of Canada. That is, she filled out the appropriate form when she left Canada and submitted it to the CRA and has a letter from them confirming her departure date.
Topic Author
airahcaz
Posts: 1525
Joined: Sat Oct 31, 2009 3:37 pm

Re: Canadian RRSP

Post by airahcaz »

PriceOfFreedom wrote:airahcaz, as others have already stated, the RRSP cannot be "rolled over" into an IRA. I'm a dual citizen (moved from Canada to the States some years ago) and have an RRSP (and LIRA).

Some points to note:
1. The RRSP proceeds are taxable in Canada when withdrawn at a flat 25% tax rate (that should be withheld by your Canadian RSP custodian on withdrawal). Once that tax is withheld, you owe no further tax to Canada. You can withdraw any amount, up to the total plan value (although, see note 1 below).
2. If she converts the RRSP to a RRIF, there will be minimum annual withdrawals, but she can also still withdraw a larger amount up to the total value. If she withdraws less than a certain limit (age-defined, there is a formula for this), it will be taxed in Canada at only a 15% rate due to a tax treaty with the US.
3. If she has no (or very little) world income, she can file a Canadian tax 217 election to reduce her Canadian withholding tax further.
3. For US tax purposes, the RRSP will have a "basis" based on the US $ acquisition cost of the RRSP holdings in the account when she moved to the US. Again, this is not a trivial computation, and is based on the US $ acquisition costs of the holdings in the account that existed when she moved. This basis will not be taxed in the US when she makes withdrawals. You can use a spreadsheet to compute the portion of the basis "consumed" for each year's withdrawals.
4. She will pay US income tax on these RRSP (or RRIF) withdrawals (but the portion which is "basis" will not be taxed in the US). Depending on her US income (or both of your US income if filing jointly), you will get a US credit for some (or all) of your Canadian taxes withheld. You will need to complete form 1116 on your US tax return to get this as a US tax credit.

A couple of other items (notes):
1. I assume you are talking about a non-locked in vehicle (RRSP rather than LIRA - that is a different animal for withdrawal flexibility and has no US "basis").
2. I hope you have been filling out form 8891 and (more recently) form 8938 each year you have been in the US with your 1040 return. Also, you need to have been filing TD F 90-22.1 with the US Treasury declaring foreign assets. There are incredibly onerous IRS penalties for not doing this every year.

You may want to check out the message board on http://forums.serbinski.com for lots of information about these and other Canada / US tax issues (Canada and United States Tax & Accounting Issues forum) for more information.
She has been in the US for about ten years but has not formally declared non resident of CAD. I'll need to check if she has diligently filed those other forms you mention. It's the right thing to do, and I guess that is how they track, and there are the penalties, but I guess how will they know? :(

On point #2, going back to the original question, is it advisable to convert to RRIF in order to start tapping into the money at the lowest tax rate possible? She does have significant US income, so the objective is to understand if we can utilize the funds without losing a ton to taxes or penalties, or if we are dead in the water and simply must leave it there if it doesn't make financial sense.

Thanks
1) Invest you must 2) Time is your friend 3) Impulse is your enemy 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course. (Plagiarized, but worth stealing)
User avatar
Norbert Schlenker
Posts: 544
Joined: Mon Feb 19, 2007 10:06 pm
Location: The Dry Side of the Wet Coast

Re: Canadian RRSP

Post by Norbert Schlenker »

airahcaz wrote:She has been in the US for about ten years but has not formally declared non resident of CAD.
It's unnecessary to file an NR73 and in some cases filing can create a problem. The tax treaty will take care of you.
I'll need to check if she has diligently filed those other forms you mention. It's the right thing to do, and I guess that is how they track, and there are the penalties, but I guess how will they know? :(
Oh, they'll find out. There are mutual assistance clauses in the treaty, and the US FATCA provisions will shortly require Canadian financial institutions (among others worldwide) to report on anyone that could possibly have ties to the US. The treaty protects your wife from paying taxes on income earned in the RRSP, but not the IRS penalties for failing to dot every i and cross every t.
is it advisable to convert to RRIF in order to start tapping into the money at the lowest tax rate possible? She does have significant US income ...
The choices boil down to these:
  • Leave the RRSP where it is. It's an account intended to fund retirement and, if your tax rate is likely to be lower or similar in retirement (which is generally true but may not apply in any specific case), then you're better off leaving it. There are issues here: the annual compliance cost with the IRS, the hassle of another account to look after, the generally higher level of fees on Canadian investment vehicles (which can be avoided).
  • Take the money and run. Cash out, let Canada take its 25% (all of which is creditable against any US tax due on the withdrawal), and invest the money as you normally would in the US.
  • Convert to a RRIF, which PriceOfFreedom notes reduces Canadian withholding to 15%. This might be the best option for some, but it's hard to see it for someone with "significant US income", because US tax due on the payments has to be in the rather narrow 15-25% range for there to be any financial benefit whatsoever over the previous option. Because the RRIF will exist for a number of years, you continue to face all the issues accompanying the first option.
The median case for someone in this situation is a 20- to 40-something with $20k stranded in an RRSP, or even more likely divided among three RRSPs, earning good money in the US and never going back to Canada. IMHO the right choice for that person is to cash out, because the dead loss is at most $2k in excess withholding, and the benefits of which are a permanent end to ongoing paperwork, high fees, and cross-border hassle. But the best choice depends both on current marginal rates in the US and how big the RRSP is now, so it's hard to know which option is advisable in your wife's case because you haven't provided enough information to make a decision (not to suggest that you should disclose her private financial data here, because you shouldn't).
Nothing can protect people who want to buy the Brooklyn Bridge.
Topic Author
airahcaz
Posts: 1525
Joined: Sat Oct 31, 2009 3:37 pm

Re: Canadian RRSP

Post by airahcaz »

Norbert Schlenker wrote:
airahcaz wrote:She has been in the US for about ten years but has not formally declared non resident of CAD.
It's unnecessary to file an NR73 and in some cases filing can create a problem. The tax treaty will take care of you.
I'll need to check if she has diligently filed those other forms you mention. It's the right thing to do, and I guess that is how they track, and there are the penalties, but I guess how will they know? :(
Oh, they'll find out. There are mutual assistance clauses in the treaty, and the US FATCA provisions will shortly require Canadian financial institutions (among others worldwide) to report on anyone that could possibly have ties to the US. The treaty protects your wife from paying taxes on income earned in the RRSP, but not the IRS penalties for failing to dot every i and cross every t.
is it advisable to convert to RRIF in order to start tapping into the money at the lowest tax rate possible? She does have significant US income ...
The choices boil down to these:
  • Leave the RRSP where it is. It's an account intended to fund retirement and, if your tax rate is likely to be lower or similar in retirement (which is generally true but may not apply in any specific case), then you're better off leaving it. There are issues here: the annual compliance cost with the IRS, the hassle of another account to look after, the generally higher level of fees on Canadian investment vehicles (which can be avoided).
  • Take the money and run. Cash out, let Canada take its 25% (all of which is creditable against any US tax due on the withdrawal), and invest the money as you normally would in the US.
  • Convert to a RRIF, which PriceOfFreedom notes reduces Canadian withholding to 15%. This might be the best option for some, but it's hard to see it for someone with "significant US income", because US tax due on the payments has to be in the rather narrow 15-25% range for there to be any financial benefit whatsoever over the previous option. Because the RRIF will exist for a number of years, you continue to face all the issues accompanying the first option.
The median case for someone in this situation is a 20- to 40-something with $20k stranded in an RRSP, or even more likely divided among three RRSPs, earning good money in the US and never going back to Canada. IMHO the right choice for that person is to cash out, because the dead loss is at most $2k in excess withholding, and the benefits of which are a permanent end to ongoing paperwork, high fees, and cross-border hassle. But the best choice depends both on current marginal rates in the US and how big the RRSP is now, so it's hard to know which option is advisable in your wife's case because you haven't provided enough information to make a decision (not to suggest that you should disclose her private financial data here, because you shouldn't).
A little over $80K currently.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course. (Plagiarized, but worth stealing)
User avatar
Norbert Schlenker
Posts: 544
Joined: Mon Feb 19, 2007 10:06 pm
Location: The Dry Side of the Wet Coast

Re: Canadian RRSP

Post by Norbert Schlenker »

Is that the size of the RRSP or her income? (Or both???)
Nothing can protect people who want to buy the Brooklyn Bridge.
Topic Author
airahcaz
Posts: 1525
Joined: Sat Oct 31, 2009 3:37 pm

Re: Canadian RRSP

Post by airahcaz »

RRSP. Income is higher.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course. (Plagiarized, but worth stealing)
User avatar
Norbert Schlenker
Posts: 544
Joined: Mon Feb 19, 2007 10:06 pm
Location: The Dry Side of the Wet Coast

Re: Canadian RRSP

Post by Norbert Schlenker »

This drip-by-drip approach to getting the data isn't useful in analyzing the situation, nor is a comprehensive public data dump wise from a privacy point of view. In the end, your wife will have to make this decision on her own.

Canada wants, at a minimum, 15% of her RRSP. That's the trade for the tax deductibility of the original contributions (no different than the trade made by people with 401(k) plans or traditional IRAs). To keep Canada to that percentage, the account has to be turned into a RRIF, which means it will stay open for the rest of her life, which in turn means filing US paperwork every year. If she wants that trouble to end, the fee goes up to 25%.

It's hard to know what the US wants, but if her income is more than $80k/year, chances are it's going to be at least 25% of the accumulated income in the RRSP, which might be close to nothing but might also be as high as 25%+ of any withdrawal. (Plus, if the state you live in has an income tax, they'll want their share too.) If the US tax liability is negligible because the basis is relatively high, then it's hard to justify collapsing the RRSP immediately. She'd pay Canada $20k, for which she'd likely get little credit on the US side, so it's a $20k dead loss. It's probably better financially to leave it as is, waiting until retirement say 25 years hence. Say the RRSP ends up worth $500k then, 15-25% withheld by Canada still, but likely fully creditable against US tax liability (because the basis, which started high, will be pretty low by then). Probably saves $20k in today's dollars. OTOH, what's 25 years of extra form filling worth to her?

If her basis is low, i.e. the RRSP is pretty much accumulated income anyway, or if her marginal tax rate is a lot higher than 25% and is likely to stay that way, or if both of those hold, then she might as well take the money and run today. At some point, taxes have to be paid on what's in the plan, and the tax rates that govern will be US rates because they will swamp the Canadian withholding. Unless she believes that her US taxes years from now will be remarkably lower than her US taxes today, waiting to cash the RRSP produces little to no financial benefit (and she still gets to fill out those forms!)
Nothing can protect people who want to buy the Brooklyn Bridge.
Topic Author
airahcaz
Posts: 1525
Joined: Sat Oct 31, 2009 3:37 pm

Re: Canadian RRSP

Post by airahcaz »

Your last paragraph is the scenario. I suppose if Canada has no early withdrawal penalty other than the taxes which would be due anyway, and the hassle of the forms annually, it may make the case to cash out - and might outweigh any real advantages (don't seem many) in keeping it there?

Really appreciate the detailed write up. Many thanks for the continued feedback.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course. (Plagiarized, but worth stealing)
Topic Author
airahcaz
Posts: 1525
Joined: Sat Oct 31, 2009 3:37 pm

Re: Canadian RRSP

Post by airahcaz »

airahcaz wrote:Your last paragraph is the scenario. I suppose if Canada has no early withdrawal penalty other than the taxes which would be due anyway, and the hassle of the forms annually, it may make the case to cash out - and might outweigh any real advantages (don't seem many) in keeping it there?

Really appreciate the detailed write up. Many thanks for the continued feedback.
Quite surprised there is no early withdrawal penalty in Canada, like there is in the US. Anyone know why that is?

We're probably going to go ahead and liquidate the RRSP and bring the funds over to the US, 25% withholding, and then need to figure any additional tax (looking for basis which seems to be "at the time she moved to the US")
1) Invest you must 2) Time is your friend 3) Impulse is your enemy 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course. (Plagiarized, but worth stealing)
ArthurO
Posts: 722
Joined: Sat May 24, 2014 12:25 pm

Re: Canadian RRSP

Post by ArthurO »

I also have $11k in Canadian respect sitting there for 10 years now. This is from the days I didn't know much about investing so average er is 1.25%. I am doing turbo tax each year and it asks about Canadian investments and RRSP. I fill out the info and I hope it handles this well.

I was also tempted to liquidate it and take money to US. But you are looking at 25% to canada 10% on currency exchange and income tax ti USA as we'll so there is not much left".....

My amount is much less than yours so please post if you withdraw and what steps are involved it would be most helpfull
ArthurO
Posts: 722
Joined: Sat May 24, 2014 12:25 pm

Re: Canadian RRSP

Post by ArthurO »

Me too, I have about 11k in Canadian RRSP, report it in Turbo Tax every year, and I hope it handles it well, ER is 1.25 average, UNHEARD OF, I was young and stupid then, didn't know anything, just picked some funds, I hope to keep it there till retirement...

I pray that TurboTax does all forms well, I am not paying hundreds and hundreds to the accountant to do that calc on top of 1.25% ER. If I have to pay penalties I will play dumb and hopefully IRS will forgive... that's my card :)
Topic Author
airahcaz
Posts: 1525
Joined: Sat Oct 31, 2009 3:37 pm

Re: Canadian RRSP

Post by airahcaz »

ArthurO wrote:Me too, I have about 11k in Canadian RRSP, report it in Turbo Tax every year, and I hope it handles it well, ER is 1.25 average, UNHEARD OF, I was young and stupid then, didn't know anything, just picked some funds, I hope to keep it there till retirement...

I pray that TurboTax does all forms well, I am not paying hundreds and hundreds to the accountant to do that calc on top of 1.25% ER. If I have to pay penalties I will play dumb and hopefully IRS will forgive... that's my card :)
Can't you change the investment to something with lower ER?
1) Invest you must 2) Time is your friend 3) Impulse is your enemy 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course. (Plagiarized, but worth stealing)
ArthurO
Posts: 722
Joined: Sat May 24, 2014 12:25 pm

Re: Canadian RRSP

Post by ArthurO »

airahcaz wrote:
ArthurO wrote:Me too, I have about 11k in Canadian RRSP, report it in Turbo Tax every year, and I hope it handles it well, ER is 1.25 average, UNHEARD OF, I was young and stupid then, didn't know anything, just picked some funds, I hope to keep it there till retirement...

I pray that TurboTax does all forms well, I am not paying hundreds and hundreds to the accountant to do that calc on top of 1.25% ER. If I have to pay penalties I will play dumb and hopefully IRS will forgive... that's my card :)
Can't you change the investment to something with lower ER?
once you become non resident of Canada you cannot control buy or sell or rebalance any investments within the RRSP. So the money is stuck where it is. Furthermore some funds in TD Canada Trust closed and they directed my funds to Money Market, there was no way to direct them anywhere else, you have zero control once you become non-resident... very frustrating but it is only 11K CAD so not that big of a deal

but the short answer is NO, I cannot change...
Topic Author
airahcaz
Posts: 1525
Joined: Sat Oct 31, 2009 3:37 pm

Re: Canadian RRSP

Post by airahcaz »

ArthurO wrote:
airahcaz wrote:
ArthurO wrote:Me too, I have about 11k in Canadian RRSP, report it in Turbo Tax every year, and I hope it handles it well, ER is 1.25 average, UNHEARD OF, I was young and stupid then, didn't know anything, just picked some funds, I hope to keep it there till retirement...

I pray that TurboTax does all forms well, I am not paying hundreds and hundreds to the accountant to do that calc on top of 1.25% ER. If I have to pay penalties I will play dumb and hopefully IRS will forgive... that's my card :)
Can't you change the investment to something with lower ER?
once you become non resident of Canada you cannot control buy or sell or rebalance any investments within the RRSP. So the money is stuck where it is. Furthermore some funds in TD Canada Trust closed and they directed my funds to Money Market, there was no way to direct them anywhere else, you have zero control once you become non-resident... very frustrating but it is only 11K CAD so not that big of a deal

but the short answer is NO, I cannot change...
We didn't find that to be true at all. We changed the investments (in TD) to an index ETF.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course. (Plagiarized, but worth stealing)
Valuethinker
Posts: 49017
Joined: Fri May 11, 2007 11:07 am

Re: Canadian RRSP

Post by Valuethinker »

airahcaz wrote:
airahcaz wrote:Your last paragraph is the scenario. I suppose if Canada has no early withdrawal penalty other than the taxes which would be due anyway, and the hassle of the forms annually, it may make the case to cash out - and might outweigh any real advantages (don't seem many) in keeping it there?

Really appreciate the detailed write up. Many thanks for the continued feedback.
Quite surprised there is no early withdrawal penalty in Canada, like there is in the US. Anyone know why that is?
As I understand Canadian tax law, the withdrawal penalty is you pay full tax at your marginal rate of income tax on what you withdraw. So the penalty is you pay the tax you would have paid, someday, but at your highest possible rate. If you are something like an author with a volatile income, then you can use the RRSP to 'income smooth' however there are annual limits as to how much you can put away which means taking it out again loses you deferral on future income and gains earned by the portfolio.
ArthurO
Posts: 722
Joined: Sat May 24, 2014 12:25 pm

Re: Canadian RRSP

Post by ArthurO »

airahcaz wrote:
ArthurO wrote:
airahcaz wrote:
ArthurO wrote:Me too, I have about 11k in Canadian RRSP, report it in Turbo Tax every year, and I hope it handles it well, ER is 1.25 average, UNHEARD OF, I was young and stupid then, didn't know anything, just picked some funds, I hope to keep it there till retirement...

I pray that TurboTax does all forms well, I am not paying hundreds and hundreds to the accountant to do that calc on top of 1.25% ER. If I have to pay penalties I will play dumb and hopefully IRS will forgive... that's my card :)
Can't you change the investment to something with lower ER?
once you become non resident of Canada you cannot control buy or sell or rebalance any investments within the RRSP. So the money is stuck where it is. Furthermore some funds in TD Canada Trust closed and they directed my funds to Money Market, there was no way to direct them anywhere else, you have zero control once you become non-resident... very frustrating but it is only 11K CAD so not that big of a deal

but the short answer is NO, I cannot change...
We didn't find that to be true at all. We changed the investments (in TD) to an index ETF.
you have to be careful, that means TD CanadaTrust still consider you Canadian Resident and so does Canadian Government, if so, you need to clearly decalre non residency with Canadian Government or they will come after you for taxes, and if you are making transactions on Canadian RRSP you are considered resident.

i can login to my TD canada trust but when I try to make an exchange a message pops up that the thransactions within this account are only allowed for canadian citizens or permanent residents, so please be careful

We didn't find that to be true at all. We changed the investments (in TD) to an index ETF.
User avatar
Norbert Schlenker
Posts: 544
Joined: Mon Feb 19, 2007 10:06 pm
Location: The Dry Side of the Wet Coast

Re: Canadian RRSP

Post by Norbert Schlenker »

ArthurO wrote:you have to be careful, that means TD CanadaTrust still consider you Canadian Resident and so does Canadian Government, if so, you need to clearly decalre non residency with Canadian Government or they will come after you for taxes, and if you are making transactions on Canadian RRSP you are considered resident.
This is wrong. Making a transaction in an RRSP doesn't turn you into a Canadian resident for tax purposes. Failing to declare yourself a non-resident on the official CRA form doesn't make you resident either.

Tax residence is a matter of fact under Canadian law, and a tenuous connection like ownership of or trading in an RRSP is insufficient connection to Canada to establish residence. On top of that, the US-Canada tax treaty has tie breaking rules which would further suggest against Canadian residence.
Valuethinker wrote:As I understand Canadian tax law, the withdrawal penalty is you pay full tax at your marginal rate of income tax on what you withdraw. So the penalty is you pay the tax you would have paid, someday, but at your highest possible rate.
There's some ambiguous phrasing here, but wrong as it's most likely to be interpreted. You will pay tax at your Canadian marginal rate on withdrawal (and then perhaps US and state tax as well, net of foreign tax credit, if that rate happens to be higher) but that won't necessarily be the "highest possible rate". On a small withdrawal, with an otherwise small income, it could be as little as nothing.
Nothing can protect people who want to buy the Brooklyn Bridge.
ArthurO
Posts: 722
Joined: Sat May 24, 2014 12:25 pm

Re: Canadian RRSP

Post by ArthurO »

Norbert Schlenker wrote:
ArthurO wrote:you have to be careful, that means TD CanadaTrust still consider you Canadian Resident and so does Canadian Government, if so, you need to clearly decalre non residency with Canadian Government or they will come after you for taxes, and if you are making transactions on Canadian RRSP you are considered resident.
This is wrong. Making a transaction in an RRSP doesn't turn you into a Canadian resident for tax purposes. Failing to declare yourself a non-resident on the official CRA form doesn't make you resident either.

Tax residence is a matter of fact under Canadian law, and a tenuous connection like ownership of or trading in an RRSP is insufficient connection to Canada to establish residence. On top of that, the US-Canada tax treaty has tie breaking rules which would further suggest against Canadian residence.
Valuethinker wrote:As I understand Canadian tax law, the withdrawal penalty is you pay full tax at your marginal rate of income tax on what you withdraw. So the penalty is you pay the tax you would have paid, someday, but at your highest possible rate.
There's some ambiguous phrasing here, but wrong as it's most likely to be interpreted. You will pay tax at your Canadian marginal rate on withdrawal (and then perhaps US and state tax as well, net of foreign tax credit, if that rate happens to be higher) but that won't necessarily be the "highest possible rate". On a small withdrawal, with an otherwise small income, it could be as little as nothing.
One thing is what the law is and another thing is what government thinks, I had issues with that few years back when I got a surprise letter from revenue canada asking me for taxes for last 3 years and it took a lot to untangle the mess partly because I was rebalancing rrsp and that is not allowed. I am speaking from person
Nal experience here and not interpreting any laws.
Topic Author
airahcaz
Posts: 1525
Joined: Sat Oct 31, 2009 3:37 pm

Re: Canadian RRSP

Post by airahcaz »

ArthurO wrote:
Norbert Schlenker wrote:
ArthurO wrote:you have to be careful, that means TD CanadaTrust still consider you Canadian Resident and so does Canadian Government, if so, you need to clearly decalre non residency with Canadian Government or they will come after you for taxes, and if you are making transactions on Canadian RRSP you are considered resident.
This is wrong. Making a transaction in an RRSP doesn't turn you into a Canadian resident for tax purposes. Failing to declare yourself a non-resident on the official CRA form doesn't make you resident either.

Tax residence is a matter of fact under Canadian law, and a tenuous connection like ownership of or trading in an RRSP is insufficient connection to Canada to establish residence. On top of that, the US-Canada tax treaty has tie breaking rules which would further suggest against Canadian residence.
Valuethinker wrote:As I understand Canadian tax law, the withdrawal penalty is you pay full tax at your marginal rate of income tax on what you withdraw. So the penalty is you pay the tax you would have paid, someday, but at your highest possible rate.
There's some ambiguous phrasing here, but wrong as it's most likely to be interpreted. You will pay tax at your Canadian marginal rate on withdrawal (and then perhaps US and state tax as well, net of foreign tax credit, if that rate happens to be higher) but that won't necessarily be the "highest possible rate". On a small withdrawal, with an otherwise small income, it could be as little as nothing.
One thing is what the law is and another thing is what government thinks, I had issues with that few years back when I got a surprise letter from revenue canada asking me for taxes for last 3 years and it took a lot to untangle the mess partly because I was rebalancing rrsp and that is not allowed. I am speaking from person
Nal experience here and not interpreting any laws.
I agree that this seems to be erroneous. We've made transactions and spoke directly to the brokerage on this. There is more to your personal situation that doesn't appear to jive.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course. (Plagiarized, but worth stealing)
hmw
Posts: 1246
Joined: Sun Mar 02, 2014 10:44 am

Re: Canadian RRSP

Post by hmw »

airahcaz wrote:
ArthurO wrote:
airahcaz wrote:
ArthurO wrote:Me too, I have about 11k in Canadian RRSP, report it in Turbo Tax every year, and I hope it handles it well, ER is 1.25 average, UNHEARD OF, I was young and stupid then, didn't know anything, just picked some funds, I hope to keep it there till retirement...

I pray that TurboTax does all forms well, I am not paying hundreds and hundreds to the accountant to do that calc on top of 1.25% ER. If I have to pay penalties I will play dumb and hopefully IRS will forgive... that's my card :)
Can't you change the investment to something with lower ER?
once you become non resident of Canada you cannot control buy or sell or rebalance any investments within the RRSP. So the money is stuck where it is. Furthermore some funds in TD Canada Trust closed and they directed my funds to Money Market, there was no way to direct them anywhere else, you have zero control once you become non-resident... very frustrating but it is only 11K CAD so not that big of a deal

but the short answer is NO, I cannot change...
We didn't find that to be true at all. We changed the investments (in TD) to an index ETF.
I have left money in my Canadian RRSP at BMO investorline and I make occasional trades. No problem at all. Your Canadian brokerage must be licensed to trade securities in the state you reside in.

I don't think that the occasional trades in your RRSP account establish Canadian residency based on what I have read on revue Canada web site.
Valuethinker
Posts: 49017
Joined: Fri May 11, 2007 11:07 am

Re: Canadian RRSP

Post by Valuethinker »

Norbert Schlenker wrote:
Valuethinker wrote:As I understand Canadian tax law, the withdrawal penalty is you pay full tax at your marginal rate of income tax on what you withdraw. So the penalty is you pay the tax you would have paid, someday, but at your highest possible rate.
There's some ambiguous phrasing here, but wrong as it's most likely to be interpreted. You will pay tax at your Canadian marginal rate on withdrawal (and then perhaps US and state tax as well, net of foreign tax credit, if that rate happens to be higher) but that won't necessarily be the "highest possible rate". On a small withdrawal, with an otherwise small income, it could be as little as nothing.
Ah.. Yes. Sorry to be unclear.

As I understand it, when you withdraw money in Canada, that's at your current marginal rate. So if you have a very variable income, eg a writer, then that can work to your advantage-- withdrawing when at a low marginal tax rate.

Implicitly I was assuming that if you defer to retirement, say, your income (and your marginal tax rate) was lower.

I was answering the question 'why no early withdrawal penalty in Canada' so I was not considering that the withdrawer might no longer be living in Canada.
aeronina
Posts: 47
Joined: Wed Jan 01, 2014 9:16 am

Re: Canadian RRSP

Post by aeronina »

1. Is anyone familiar with the province of Quebec regulations regarding university retirement accounts? From my talks with RBC Direct Investing, the investment branch of the Royal Bank of Canada, the only funds available to permanent residents of California (us), are individual stocks of Canadian owned firms, like Bombardier. According to RBC, no index funds, no ETF funds, no mutual funds are permitted. Tough for a Boglehead like me! Furthermore, RBC Direct Investing has been stalling to touch our account because they don't want to deal with the cross-border tax issues. Our hope had been to use them to transfer these funds into a Vanguard Canada passively-managed index fund, whatever was allowed.
2. Is anyone currently a California resident with funds in a Quebec or Canadian retirement account in ETF index funds or mutual index funds? (Could RBC be wrong? There is a lot of confusion in rules out there). Apparently both the federal government and each state has its own rules regarding what retirement accounts in Canada of American residents are allowed to do (at least according to my only source, RBC Direct Investing).
The university rules are that if we removed the funds before retirement, we could only take our contribution, not the university's contribution, so we left it at McGill University since 1983 and it has grown in spite of MER of 1.5% or worse to about $290,000 in their "balanced fund". According to Canadian law (not sure if this is reflected in Quebec law which apparently governs this retirement account), we are obliged to start RMD within 2 years, the year you turn 70. The contractor of retirement accounts of McGill University is Morneau-Shepell. Morneau-Shepell told us that McGill's retirement account is "like an RRSP but it isn't an RRSP". Furthermore our only option is to turn it into a LIRA and to find a Canadian bank or brokerage firm to distribute the funds. As American residents of California we asked Morneau-Shepell for help and suggestions of such (only allowed) Canadian banks and brokerage firms. They have not responded to our repeated queries for months, totally unhelpful in their fiduciary duties!
3. Anyone with experience of a retirement plan from Quebec? Any suggestions of Canadian banks or brokerage firms with low ER willing to deal with cross border tax issues would be much appreciated.

Furthermore, we weren't aware that we were supposed to inform the IRS of the Canadian locked-in retirement account until distributions were begun. Our accountant told us that once distributions are begun, to be sure to do it properly with an accountant knowledgeable re cross-border rules because otherwise we will be taxed in both countries. He said nothing that he should have been filling in additional IRS forms all along regarding our Canadian retirement funds. Agh what a mess!
User avatar
LadyGeek
Site Admin
Posts: 95686
Joined: Sat Dec 20, 2008 4:34 pm
Location: Philadelphia
Contact:

Re: Canadian RRSP

Post by LadyGeek »

FYI - New member aeronina has posted this question at our sister Canadian site, Financial Wisdom Forum. The best advice is usually given by your home country forum.

See: California resident & retirement plan under Quebec rules

(I'm a member of both forums.)
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
matt3161
Posts: 1
Joined: Sun Oct 12, 2014 1:09 pm

Re: Canadian RRSP

Post by matt3161 »

PriceOfFreedom wrote:airahcaz, as others have already stated, the RRSP cannot be "rolled over" into an IRA. I'm a dual citizen (moved from Canada to the States some years ago) and have an RRSP (and LIRA).

Some points to note:
1. The RRSP proceeds are taxable in Canada when withdrawn at a flat 25% tax rate (that should be withheld by your Canadian RSP custodian on withdrawal). Once that tax is withheld, you owe no further tax to Canada. You can withdraw any amount, up to the total plan value (although, see note 1 below).
2. If she converts the RRSP to a RRIF, there will be minimum annual withdrawals, but she can also still withdraw a larger amount up to the total value. If she withdraws less than a certain limit (age-defined, there is a formula for this), it will be taxed in Canada at only a 15% rate due to a tax treaty with the US.
3. If she has no (or very little) world income, she can file a Canadian tax 217 election to reduce her Canadian withholding tax further.
3. For US tax purposes, the RRSP will have a "basis" based on the US $ acquisition cost of the RRSP holdings in the account when she moved to the US. Again, this is not a trivial computation, and is based on the US $ acquisition costs of the holdings in the account that existed when she moved. This basis will not be taxed in the US when she makes withdrawals. You can use a spreadsheet to compute the portion of the basis "consumed" for each year's withdrawals.
4. She will pay US income tax on these RRSP (or RRIF) withdrawals (but the portion which is "basis" will not be taxed in the US). Depending on her US income (or both of your US income if filing jointly), you will get a US credit for some (or all) of your Canadian taxes withheld. You will need to complete form 1116 on your US tax return to get this as a US tax credit.

A couple of other items (notes):
1. I assume you are talking about a non-locked in vehicle (RRSP rather than LIRA - that is a different animal for withdrawal flexibility and has no US "basis").
2. I hope you have been filling out form 8891 and (more recently) form 8938 each year you have been in the US with your 1040 return. Also, you need to have been filing TD F 90-22.1 with the US Treasury declaring foreign assets. There are incredibly onerous IRS penalties for not doing this every year.

You may want to check out the message board on http://forums.serbinski.com for lots of information about these and other Canada / US tax issues (Canada and United States Tax & Accounting Issues forum) for more information.

Question? how does one calculate the foreign tax credit , if the Basis redcuces the US taxable portion of the RRSP withdrawal, do I have to point out to my accounant that the same % of the foreign tax credit should not be taken into consideration as a deduction?

I recently collapsed a small $23,000 CDN plan completely but have much larger holdings that have grown since I moved to the US 18 years ago.

Don't plan on closing those out until I turn 70 in 9 years but am starting to wonder whether the hassle is worth waiting. Tax bracket hih now though.

I have been doing the 8891's and other disclosures since I moved here.

Accounting fees may start to make the continued holding too much trouble.

Thanks
209south
Posts: 528
Joined: Mon Jan 28, 2013 9:58 pm

Re: Canadian RRSP

Post by 209south »

Sorry to bring up an old thread, and I may have missed the answer in the many replies, but my question is as follows: My wife and I are both dual citizens, having moved to the US from Canada 25+ years ago - we have aggregate RRSP balances of ~C$100,000, all invested in GICs earning ~$1500 per year. Our W2 income is currently high enough that I don't want to terminate the RRSPs now, but is the annual income 'within' the RRSPs taxable currently in the US???
hmw
Posts: 1246
Joined: Sun Mar 02, 2014 10:44 am

Re: Canadian RRSP

Post by hmw »

209south wrote:Sorry to bring up an old thread, and I may have missed the answer in the many replies, but my question is as follows: My wife and I are both dual citizens, having moved to the US from Canada 25+ years ago - we have aggregate RRSP balances of ~C$100,000, all invested in GICs earning ~$1500 per year. Our W2 income is currently high enough that I don't want to terminate the RRSPs now, but is the annual income 'within' the RRSPs taxable currently in the US???
The income generated within your RRSP is not taxable. You were supposed to declare your RRSP to IRS each year with form 8891. But IRS simplified thints this year and got rid of form 8891. If still have delare your foreign accounts and assets to IRS (can't remember the form #) and to the U.S. treasure department if you exceed the asset threshold.


http://www.irs.gov/uac/Newsroom/IRS-Sim ... quirements
209south
Posts: 528
Joined: Mon Jan 28, 2013 9:58 pm

Re: Canadian RRSP

Post by 209south »

I greatly appreciate that insight, hmw - confirmed that with my accountant as well. Thanks.
Topic Author
airahcaz
Posts: 1525
Joined: Sat Oct 31, 2009 3:37 pm

Re: Canadian RRSP

Post by airahcaz »

Norbert Schlenker wrote:This drip-by-drip approach to getting the data isn't useful in analyzing the situation, nor is a comprehensive public data dump wise from a privacy point of view. In the end, your wife will have to make this decision on her own.

Canada wants, at a minimum, 15% of her RRSP. That's the trade for the tax deductibility of the original contributions (no different than the trade made by people with 401(k) plans or traditional IRAs). To keep Canada to that percentage, the account has to be turned into a RRIF, which means it will stay open for the rest of her life, which in turn means filing US paperwork every year. If she wants that trouble to end, the fee goes up to 25%.

It's hard to know what the US wants, but if her income is more than $80k/year, chances are it's going to be at least 25% of the accumulated income in the RRSP, which might be close to nothing but might also be as high as 25%+ of any withdrawal. (Plus, if the state you live in has an income tax, they'll want their share too.) If the US tax liability is negligible because the basis is relatively high, then it's hard to justify collapsing the RRSP immediately. She'd pay Canada $20k, for which she'd likely get little credit on the US side, so it's a $20k dead loss. It's probably better financially to leave it as is, waiting until retirement say 25 years hence. Say the RRSP ends up worth $500k then, 15-25% withheld by Canada still, but likely fully creditable against US tax liability (because the basis, which started high, will be pretty low by then). Probably saves $20k in today's dollars. OTOH, what's 25 years of extra form filling worth to her?

If her basis is low, i.e. the RRSP is pretty much accumulated income anyway, or if her marginal tax rate is a lot higher than 25% and is likely to stay that way, or if both of those hold, then she might as well take the money and run today. At some point, taxes have to be paid on what's in the plan, and the tax rates that govern will be US rates because they will swamp the Canadian withholding. Unless she believes that her US taxes years from now will be remarkably lower than her US taxes today, waiting to cash the RRSP produces little to no financial benefit (and she still gets to fill out those forms!)
In filing taxes now, we are searching for the basis upon moving to the U.S. However, a high basis seems to still allow the majority of foreign tax credit and wanted to be sure this can be allowed.

e.g. Liquidated $67K RRSP
Worldwide income goes up by this $67K
Paid CRA their 25% or ~$17K
If basis is high (assume for example sake that basis is the full $67K), it seems to be actually reducing the overall US tax liability - e.g. meaning if taxes due on the 1040 were $27K (before accouting for the RRSP liquidation), then taxes due after the foreign tax credit are now $10K.

Is this correct? If basis for the liquidated RRSP Is very high, the foreign tax credit can still be utilized in totality to reduce US taxable income?

Thanks.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course. (Plagiarized, but worth stealing)
Topic Author
airahcaz
Posts: 1525
Joined: Sat Oct 31, 2009 3:37 pm

Re: Canadian RRSP

Post by airahcaz »

airahcaz wrote:
Norbert Schlenker wrote:This drip-by-drip approach to getting the data isn't useful in analyzing the situation, nor is a comprehensive public data dump wise from a privacy point of view. In the end, your wife will have to make this decision on her own.

Canada wants, at a minimum, 15% of her RRSP. That's the trade for the tax deductibility of the original contributions (no different than the trade made by people with 401(k) plans or traditional IRAs). To keep Canada to that percentage, the account has to be turned into a RRIF, which means it will stay open for the rest of her life, which in turn means filing US paperwork every year. If she wants that trouble to end, the fee goes up to 25%.

It's hard to know what the US wants, but if her income is more than $80k/year, chances are it's going to be at least 25% of the accumulated income in the RRSP, which might be close to nothing but might also be as high as 25%+ of any withdrawal. (Plus, if the state you live in has an income tax, they'll want their share too.) If the US tax liability is negligible because the basis is relatively high, then it's hard to justify collapsing the RRSP immediately. She'd pay Canada $20k, for which she'd likely get little credit on the US side, so it's a $20k dead loss. It's probably better financially to leave it as is, waiting until retirement say 25 years hence. Say the RRSP ends up worth $500k then, 15-25% withheld by Canada still, but likely fully creditable against US tax liability (because the basis, which started high, will be pretty low by then). Probably saves $20k in today's dollars. OTOH, what's 25 years of extra form filling worth to her?

If her basis is low, i.e. the RRSP is pretty much accumulated income anyway, or if her marginal tax rate is a lot higher than 25% and is likely to stay that way, or if both of those hold, then she might as well take the money and run today. At some point, taxes have to be paid on what's in the plan, and the tax rates that govern will be US rates because they will swamp the Canadian withholding. Unless she believes that her US taxes years from now will be remarkably lower than her US taxes today, waiting to cash the RRSP produces little to no financial benefit (and she still gets to fill out those forms!)
In filing taxes now, we are searching for the basis upon moving to the U.S. However, a high basis seems to still allow the majority of foreign tax credit and wanted to be sure this can be allowed.

e.g. Liquidated $67K RRSP
Worldwide income goes up by this $67K
Paid CRA their 25% or ~$17K
If basis is high (assume for example sake that basis is the full $67K), it seems to be actually reducing the overall US tax liability - e.g. meaning if taxes due on the 1040 were $27K (before accouting for the RRSP liquidation), then taxes due after the foreign tax credit are now $10K.

Is this correct? If basis for the liquidated RRSP Is very high, the foreign tax credit can still be utilized in totality to reduce US taxable income?

Thanks.
Anyone?
1) Invest you must 2) Time is your friend 3) Impulse is your enemy 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course. (Plagiarized, but worth stealing)
blais
Posts: 1
Joined: Sat Aug 06, 2016 10:41 pm

Re: Canadian RRSP

Post by blais »

Not an expert here, but researching this matter a bit:

This answer appears to indicate that the Foreign Tax Credit can only be applied against income of foreign source:
https://ttlc.intuit.com/questions/27300 ... tax-credit

"Unfortunately, extra foreign tax credit cannot be used against US income, you may end up saying goodbye to that money if not able to use it up in the next 10 years."

I don't understand this, but Wikipedia alludes to it:
https://en.wikipedia.org/wiki/Foreign_t ... rce_income

(I'd love to know the final answer to this.)
Post Reply