How to bring by RRSP into the USA

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canadian-to-america
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How to bring by RRSP into the USA

Post by canadian-to-america »

Hello,

And apologies if this is an oft asked question. I took some time to read other threads, but can't quite find the answer to my specific situation.

I am American and my wife is in the process of becoming a permanent resident (about to have first post-marriage interview with USCIS, after which permanent residency is possible).

We need to gain access to my wife's RRSP in Canada in order to buy our first home. We called and they gave us the expected message that she will incur the 25% tax.

Question: is there any way to lower the tax rate from 25% to 15%, which I have read is possible out on the web? Would the tax implications change if she redeemed her RRSB now, before becoming a permanent resident, or after becoming a permanent resident. Would it benefit her to tranfer it to an RRIF, or another vehicle or avoid full redemption all at once?

She is about to get her first job in the states, so she will definitely have income this year, thus making the form 217 not worth undertaking I think.

Thank you in advance for any advice you have.
canadian-to-america
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Joined: Tue Jul 22, 2014 4:28 pm

Post by canadian-to-america »

And apologies for my spelling mistake in the title, meant it to read: "How to bring my RRSP into the USA."
nelsona
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Post by nelsona »

There are only 2 ways to get RRSP funds out with less than 25% tax.

The first is by using the 217 election, which alows non-residents to have their pension income (like RRSP andRRIF) taxed "as if" you lived in canada. This only works if you have little or no other income, and reslts in getting about 10-12K per year out tax-free. You can take more out with the result being taxed at some figure calculated lower than 25%.

Typically, the non-working spouse of a US worker can do this. if the person is working, or has a good amount of other income, it just won't work.


The other is to convert the RRSP to aa RRIF (one can do this at any age), and take 10% of the balnace every year at 15% tax. Once you convert though, you are committing to take *some* RRIF every year, as ther is mandatory withdrawals from RRIFs, at any age.
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nelsona
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Post by nelsona »

There is no "timing issue" with doing this, other than she must be living in US already, which she is.

What kind of figures are we talking about?
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canadian-to-america
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Post by canadian-to-america »

Nelsona thanks so much for this clear information.

We realized recently that last year would've been here forever to redeem the rrsp since she has no other income, this allowing for the 217 route.

She will only have about 7k in income this year at her new part time job. With such small income, would 217 still be a viable route?

There is 27k in the rrsp. Also about 10k in a pension fund we'd like to gain access to.

The RRIF actually sounds like another solution for us, since we actually don't need the whole amount of the RRSP now, but could take the 10% a year and still do what we need to do. She is 32 years old. Would that be okay for the RRIF? (or does she need to be retirement age?)

Thanks so much
canadian-to-america
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Post by canadian-to-america »

Typing on a cell phone, meant to say: "We realized recently that last year would've been the time for her to redeem the rrsp since she has no other income, thus allowing for the 217 route. "
nelsona
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Post by nelsona »

with 7K of income, she could probably take the whole amount and pay well under 15% using 217. And be done with the headache.

I would run the numbers using ufile.ca and using her figures for 2014. Don't forget to include any medical expenses you pay (like your work premiums) as deductions.

The quicker she takes the money the less US tax she will owe, since that is based on growth while in US.

RRIF at this point would only allow her to take $2700 this year. Why bother for that amount.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
canadian-to-america
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Post by canadian-to-america »

Okay that sounds great.

One website said your RRSP withdrawl would need to be "approximately 90% of your income for the year" for the form 217 to work, so we were discouraged by that.

By after reading Nelsona's post, I went and found this:

"The non-resident can choose to make a section 217 election, which could reduce the tax on amounts withdrawn from the RRSP by the non-resident. This election is beneficial if the individual's pension income from the RRSP is equal to at least 50% of his or her worldwide income and is reported on the special section 217 tax return, where personal credits can be claimed. "
http://americanlaw.com/ustxperm.html

So since she will have so little income this year it seems this is the route we will take.

Is form 217 a complete Canadian tax return, or just a special form to mail in alone (at any time, or during tax filing season in Canada?)
nelsona
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Post by nelsona »

The 90% figure is used as a trigger for full or partial personal exemptions. However it does not eliminate the benefit of 217, especially at the level you are talking about.

I don't know where the 50% number comes from, it is NOT a figure anywhere in the 217 process. the website you quote is an immigration site, not taxation, and should not be viewed as authoritative. Looks like it is mostly cut and paste with a little opinion thrown in.

In any event, as I told you, run scenarios on ufile.ca using the 2013 form with 2014 numbers. You are looking to get to 15%. I think you can do it in one year and be done with it.

It is filed as a tax return in the spring. It is a full tax return, with 3 added schedules for 217.
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canadian-to-america
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Post by canadian-to-america »

Great, and then to redeem the rrsp... my wife will call Standard Life of Canada and they will say "25% tax" must be taken, so would the 15% come into play next year, after filing the canadian return with form 217, and arive in the form of a refund/rebate?
nelsona
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Post by nelsona »

Any RRSP withdrawl will be withheld at 25%. 217 is to get a refund.

There is an NR5 process that can get the withholding reduced, but it still must be followed-up with 217, and NR5 would take about 18 months to get approved, so don't aste your time.

How's the 217 estimation coming. That is really all you need to do right now.
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nelsona
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Post by nelsona »

ufile even has a button that turns the 217 feature on. Used it for the many years my wife used 217.

I only use 15% as a target because you will never get a lower withholding rate than that no matter how slowly you take the funds out. So if you can do it fast in a year that she has little income, just do it.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
nelsona
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Post by nelsona »

So I ran a couple of scenarios

Given she has $7000 of US income, and I assumed you have about $1000 in Medical expenes.

if she takes 28000 form RRSP, she ends up paying 18%
if she takes 16000 from RRSP, she ends up paying 11%. So this scenario assumes you will take the money in 2 chunks. One this year and one next.

BUT that assumes she will not be making anymore money next year than this year.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
canadian-to-america
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Post by canadian-to-america »

wow you're better than me in figuring out the ufile.ca interface. I've setup a return for her, but don't know where to enter the following three:
1) Income from her part time job in the USA, total amount 7500
2) Pension redemption from Standard Life of Canada, total 9800
3) RRSP withdrawl, which like you said could be half or all. (supposed to be on line 129 but how on earth do I enter the amount on that line with ufile.ca)

Thanks for those estimate percentages. That helps.

Wow, thanks for all your help Nelsona!
canadian-to-america
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Post by canadian-to-america »

And then wasn't sure if I should put myself anywhere in the financial picture. E.g. with the medical, we have 5k in medical premiums for her and I alone which I pay through my employer. Could she take that as a deduction? Seems she would otherwise want to file solo so my income isn't taken into account.
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