Liquidating RRSP in 2018

jcyr · Post by **jcyr** » Fri Dec 15, 2017 11:46 pm

I'm a dual citizen retired and living in the USA (age 64). I wish to liquidate all of my Canadian RRSP and LIRA accounts early in 2018. These total a few hundred thousand $CDN and I understand they'll withhold 25% off the top in Canadian taxes. I don't want to mess with annuities so the 15% deal is not considered.

I understand that I will receive a 'foreign tax credit', that can be fully applied against US taxes on foreign related income.

- Are these assumptions correct?
- Are there annual or other limits on the size of the credit?

nelsona · Post by **nelsona** » Sat Dec 16, 2017 10:16 am

You don't need to do an annuity to get 15% Cdn tax, but you would need to stretch out the withdrawals.

If you choose to do as you are saying, yes, the Cdn tax will be 25%, and the taxable portion of your RRSP, and ALL of your LIRA will be taxable in US.

The Cdn tax can then be used against the taxable amount you report on your 1040, using form 1116, general limitation category.

Whether you get to use ALL the Cdn tax will depend on how much other income you have next year, but givne the amount you are talking about, the US tyax will be MUCH more than 25%, so you should be able to get it all as credit.

jcyr · Post by **jcyr** » Sat Dec 16, 2017 1:03 pm

[quote]If you choose to do as you are saying, yes, the Cdn tax will be 25%, and the taxable portion of your RRSP, and ALL of your LIRA will be taxable in US.[/quote]

What do you mean by 'taxable portion of RRSP', isn't it ALL taxable?

Also I understood that I had to convert to an annuity to get the 15%.

I wanted to get rid of these to eliminate my FINCEN reporting obligations...

Bubba Gums · Post by **Bubba Gums** » Sat Dec 16, 2017 3:42 pm

To get the 15% Canadian tax rate, you would convert your various accounts into a RRIF. You are allowed to withdraw the greater of (10% of the market value or 2X the minimal amount) at the 15% withholding.

nelsona · Post by **nelsona** » Sat Dec 16, 2017 4:30 pm

Fincen reporting is not a reason to get rid of your foreign accounts in one fell swoop. These are retirement accounts.

Search for taxable portion of RRSP in this forum. Basically the amount you had in RRSP when you became a US taxpayer is considered non-taxable in US.

For RRSP you convert to a RRIf. For a LIRA, you convert to a LIF. AS Bubba says, you can withdraw upto 10% a year from a RRIf or LIF at the 15% rate.

Bubba Gums · Post by **Bubba Gums** » Sat Dec 16, 2017 4:45 pm

You are allowed to unlock a LIRA when you become a non-resident of Canada. This turns it into a RRSP. Thus, you could collapse all of your accounts into a RRIF.

nelsona · Post by **nelsona** » Mon Dec 18, 2017 10:07 am

Perhaps. Much depends on the provincial rules. At one time, the only way to unlock a LIRA as a non-resident was in order to collapse it completely. This has changed for some jurisdictions.

http://www.taxtips.ca/pensions/rpp/unlockingrpp.htm

Ontario, for example, still requires non-residents only to "unlock AND withdraw" the entire amount. Form 5 part 2D.

http://www.fsco.gov.on.ca/en/pensions/F ... /1167E.pdf
In any event, if one wants to take advantage of the 15% withholding, it cannot be an RRSP, it must be either a RRIF, LIF, annuity or similar product.

And the US taxation of the RRIF, will depend on its source. LIRA money will be 100% taxable in US, even if melded with a personal RRSP/RRIF.

jcyr · Post by **jcyr** » Mon Dec 18, 2017 1:08 pm

Thank you all for the information. I still don't understand how provincial jurisdiction applies to LIRA conversions? I'm not resident of any Canadian province. I reside in the US.

So 15% vs 25%? I still think taking the 10% hit up front might be a better choice. It liberates locked in funds, allowing me to make better investments locally in a market I better understand. The return on these Canadian funds has been dismal over the years, mainly due to my inability to manage them from a distance, and I fear it would be the same with these RRIF or LIF plans.

And, did I memntion... I hate having to report to FINCEN. :-)

nelsona · Post by **nelsona** » Mon Dec 18, 2017 2:06 pm

LIRAs are governed by the jurisdiction in which they were set up, not where you reside.

Did you look at the link I provided? You will see there is a patchwork of jurisdictional differences when it comes to LIRAs. You will need to abide by one of those (your LIRA trustee can tell you which) in order to unlock your LIRA.

As to the NR tax, my concern is not so much the NR tax rate, but the HUGE US tax hit you will take by withdrawing in one year. Your tax hit could reach 40% plus state tax. Consider spreading it ove a few year, or RRSP first, and LIRA second, while taking advantage of the 15% while you do.

Would you collapse your US-based pensions in one shot? Probably not. Because of the tax hit. I suspect that if you are not into FINCEn you aren't big on taxes either.

One can manage their portfolios from US. You just need to be with the correctly licensed brokerage. My RRSP usually does better than my 401(k).

As to FINCen, I hate taking out the garbage, but the alternative stinks. Seems a hefty (no pun intended) price to pay to get rid of accounts.

Since you did not know that your RRSP wasn't fully taxable in US, and that your LIRA has certain jurisdictional rules for collapse, I would say a little more analysis on your part would be useful before dumping 1/2 your Cdn pensions in taxes, just to not file FinCEN.

jcyr · Post by **jcyr** » Mon Dec 18, 2017 4:30 pm

Ok, I'll have to bow to your rational arguments. In my defense I'll point out that these funds make up only a small portion of my retirement capital, and have become more of a nuisance than anything else!

Sigh...

jcyr · Post by **jcyr** » Mon Dec 18, 2017 7:00 pm

One final question. Are RRIF and LIF funds restricted to Canadia equities?

nelsona · Post by **nelsona** » Mon Dec 18, 2017 10:37 pm

They are never been restricted to Cdn equities. In fact, several years ago, the maximum foreign content (which was 25% at the time, I believe) was lifted entirely.

rallo · Post by **rallo** » Wed Feb 07, 2018 1:04 am

I am in a similar position as JCYR and was wondering about Nelsona's comment about how to manage your RRSP from the US. My RRSP's returns have been dismal over the past 15 yrs and I am unable to manage them presumably because of US/Cdn rules but I would be interested in knowing of any brokerage firms that can help me. Thanks.

nelsona · Post by **nelsona** » Wed Feb 07, 2018 7:43 am

TD Direct has allowed for US residents to hold and manage their RRSPs for many years.

rallo · Post by **rallo** » Wed Feb 07, 2018 12:24 pm

Nelson
Thank you very much for this information. I have recently discovered this forum and am finding outthat "I dont know what I dont know". My wife and are Canadian and US citizens currently living in Tennessee, having moved to the US from Canada over 15 yrs ago. We have both RRSP's and IRA's but have not moved the RRSP's to the US and have never made any contributions or withdrawals to the RRSP since coming here. My children who are residents of liCanada are contingent beneficiaries for our RRSP's. Is there a legal (or tax) obligation to move the funds to the US if we dont require to use the money here. Thanks.