inheriting a RRIF

[melissab]

My sister and I will be inheriting a RRIF in Canada from our mother. We both live in the US. I'm a citizen and she's a greencard holder. My mother moved to US from Canada about 8 years ago and is also greencard holder. She has been taking the minimum monthly withdrawals from the RRIF as she's 74.

My question is: does it save money in the long run, in terms of taxation, to make larger withdrawals from the RRIF now while she's still living? I guess I'm not clear on how the RRIF is taxed when she passes away ( which country, does tax bracket come into play etc). I believe right now, 15% is withheld and she takes that as a credit on the US tax return but she's at a fairly low tax bracket. She would be in a much higher tax bracket in the US if the lump sum was withdrawn upon her death. Thank you.

[sofarsogood]

Since you and your sister are non spouse beneficiaries of a RRIF, the RRIF will be closed, assets transferred to your names and you have to pay the tax as income.

This article will clarify the rules
https://www.moneysense.ca/save/taxes/ta ... -accounts/

Since she's now on a lower tax bracket, your mother can take a larger RRIF withdrawal, invest the proceeds on a US investment account (i.e. Vanguard, Fidelity) which you will then inherit on a stepped up basis when she passes away.

[MaggieA]

I have experience with this in Canada - my sister and I inherited a RRIF from our dad - and most definitely, the full amount of the RRIF was paid out to us, but our dad's estate owed the tax, on his date-of-death tax return. In this case sister and I were named beneficiaries of the RRIF, so it didn't go into probate and get disbursed as part of the estate. Nonetheless, it was dad's estate that had to pay the tax, not us. The OP is correct that if the amount of the RRIF is large, this bumps up the tax bracket.

The article linked by sofarsogood is also quite clear that it's the estate that pays the tax, not the beneficiaries (although sofarsogood's comment says "you have to pay the tax" which seems misleading).

How the cross-border scenario affects this I don't know, but my guess is that it's the estate that pays the tax in this case too.

I agree with the idea of drawing down the RRIF more aggressively to take advantage of mom's low tax bracket. sofarsogood's suggestion of investing the extra proceeds in a US investment account is a good one.

[nelsona]

Since she is a US person, these will be an estate filing made at there death, but unless she is a multo-millionaire, there will be no tax owung for US on any of her holdings at death.

I would agree that taking out as much of her RRIF as possible now, filing a 217 if necessary to keep her in the 15% tax bracket in Canada (which I seem to recall is about 25K/year. Since it is unlikely that much of her RRIF is taxable in US, since she only moved there 8 Yrs ago, I wouldn't worry about US income tax: it will be covered by the Cdn tax.

At death, her estate's Cdn tax will probably be more in the 25% range, since it will not be considered periodic.

How much RRIF are we talking about?