RRSP withdrawal before or after emmigrating

themw · Post by **themw** » Wed Jul 01, 2009 12:42 pm

Hi,

I'm a US citizen resident in Canada. I have no Canadian income in 2009, so thought it would be a good year to withdraw some or all of my RRSP. I'm moving back to the US on Oct 1, though, and may begin earning US income, so can somebody help me understand the tax consequences of withdrawing from my RRSP? I've filed an 8891 every year and have never elected to defer US tax on undistributed earnings.

- If I withdraw while still resident in Canada, I'll be subject to the normal withholding, but I should be able to get some back by filing a Canadian return? Will the tax rate calculation include US income earned after emigrating, or just Canadian income (thus giving me the favorable tax rate on the withdrawal)?

- Alternately, I can withdraw after emigrating, and be subject to a 25% non-resident withholding or 15% for periodic withdrawals, correct?

Are there any differences to how this impacts my US taxes?

Thanks for any help.

nelsona · Post by **nelsona** » Wed Jul 01, 2009 1:23 pm

First, the withholding done while a Cdn resident has little bearing on your fianl Cdn tax, so I wouldn't worry about it.

Withdrawal as a Cdn resident. Your RRSP withdrawl will be reported on your departure tax return. As an emigrant, you will only get pro-rated personal ammount, based on days in Canada. If you say you have no Cdn income, you can expect 0 tax on the first ~7K and then 23% tax on the next 20K. If you earn no US income for therest of the year, the first ~10K will be non-taxed, instead of the first 7K.

Withdrawal as a US resident. You will be taxed 25% NR flat (never 15%). If you earn little or no income in the US for the rest of the year, you can elect to have the RRSP withdrawl taxed like a Cdn resident (as above). If that turns out less than 25%, you will get some of the 25% NR tax back. If you do earn income in US, you simply leave the NR tax as is: 25% flat.

So, it comes down to how much you want to take and what liklihood tha tyou will work in US this year.

If you are going to take less than 10K, I would do it now. If it is between 10-25K, I would take $10K now, and wait to know if I'll be working to decide whether to take more before leaving. If I planned to take anymore than this, I would wait until after leaving, regardless of work situation, maybe even waiting for next year.

So, 10K now; upto another 25K just before leaving, if I'm going to work, or wait til later if I do work.

nelsona · Post by **nelsona** » Wed Jul 01, 2009 1:46 pm

No differnce for US tax. Since you have not been deferring taxes (ie. you've been paying tax on internal growth every year, right), you will do the same for 2009. The withdrawal is really a non-event for US tax purposes, other than any cap gains that might be triggered.

nelsona · Post by **nelsona** » Wed Jul 01, 2009 1:47 pm

Was there a reason you chose not to defer tax? Just curious.

themw · Post by **themw** » Wed Jul 01, 2009 2:50 pm

Many thanks. That was quite helpful and clear.

Have only had the RRSP 2 years... 2007, an accountant made the deciision -- maybe I had enough foreign tax credit to offset the gains? Maybe it was a mistake. 2008, I didn't have gains.