Collapsing RRSP after leaving Canada
Moderator: Mark T Serbinski CA CPA
Collapsing RRSP after leaving Canada
Sounds like this may be the best thing to do. Together we have about 70K or so and moving it out of Canada would be simplest.
-I know that I should wait until we have left Canada. If we leave the country July 28, can we move it July 29? Or should we wait longer to make sure we are considered non-resident?
The collapsed RRSP would be reported as income to the IRS? Something else? Canada would tax its share, we report the collapse to the US, they tax (or not, if we have enough foreign tax credits), done? Try to get a Section 217 refund on the following year's departure return if possible. Am I understanding?
-I know that I should wait until we have left Canada. If we leave the country July 28, can we move it July 29? Or should we wait longer to make sure we are considered non-resident?
The collapsed RRSP would be reported as income to the IRS? Something else? Canada would tax its share, we report the collapse to the US, they tax (or not, if we have enough foreign tax credits), done? Try to get a Section 217 refund on the following year's departure return if possible. Am I understanding?
Hi - this is an important move. You need to consider this carefully. There is no need to collapse your RRSP if you are moving to the US. It is not necessary to do this in order to meet the "several all ties to Canada" requirement.
Also, you will likely pay much more tax to Canada if you take it out all in one year. A $70k withdrawal would be taxed at likely 30-50% depending on your province and your other taxable income. If you move to the US, do your withdrawal there, you'll pay a flat 25% to Canada, and likely little or nothing to the IRS while you are a US resident - your Canadian tax would likely eliminate anything you'd owe to the US, and also, very little of your RRSP would be taxable for US purposes.
Please be careful, as this can make a big difference!
Best REgards.
Also, you will likely pay much more tax to Canada if you take it out all in one year. A $70k withdrawal would be taxed at likely 30-50% depending on your province and your other taxable income. If you move to the US, do your withdrawal there, you'll pay a flat 25% to Canada, and likely little or nothing to the IRS while you are a US resident - your Canadian tax would likely eliminate anything you'd owe to the US, and also, very little of your RRSP would be taxable for US purposes.
Please be careful, as this can make a big difference!
Best REgards.
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MGeorge is neither an accounting nor taxation professional.
MGeorge is neither an accounting nor taxation professional.
I believe eortlund is already a US taxpayer, so any RRSP withdrawal will come with some US tax consequences.
There is no need to hastily remove the funds, since (a) it will take some time for your RRSP trustee to note that you are US resident (and it is not a light switch), and (b) you will already be on the hook for some US income, so selling "the next day" doesn't mean zero tax in US.
As MG says, this is not a residential tie in any event.
There is no need to hastily remove the funds, since (a) it will take some time for your RRSP trustee to note that you are US resident (and it is not a light switch), and (b) you will already be on the hook for some US income, so selling "the next day" doesn't mean zero tax in US.
As MG says, this is not a residential tie in any event.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
Yes, I would definitely wait until after we were non-resident. I assumed we would tell our RRSP custodian our new address right away so they will know.
I can see how there could be advantages to leaving it here, but I see it being a hassle long-term. Would like to have a simpler financial life if we can.
So if we take the whole amount, does it get reported as income on the 2016 1040? All or most of the US tax owed would be covered by the foreign tax credit based on what we paid to Canada? I don't want to do this and end up with a huge tax bill we can't pay. I don't plan to work next year or maybe the next couple years, so perhaps I should take mine out more gradually and do Section 217 with CRA? Mine is $37,000 or so.
I can see how there could be advantages to leaving it here, but I see it being a hassle long-term. Would like to have a simpler financial life if we can.
So if we take the whole amount, does it get reported as income on the 2016 1040? All or most of the US tax owed would be covered by the foreign tax credit based on what we paid to Canada? I don't want to do this and end up with a huge tax bill we can't pay. I don't plan to work next year or maybe the next couple years, so perhaps I should take mine out more gradually and do Section 217 with CRA? Mine is $37,000 or so.
As I said, you can sell it as soon as you are sure you are US resident in the eyes of CRA.
There is no point stepping up the basis, sicne your taxability in US is based on your CONTRIBUTION values (in yearly US dollars), which I'm sure you have already nailed down in a file somewhere, if you've been paying even marginal attention to this website.
There is no point stepping up the basis, sicne your taxability in US is based on your CONTRIBUTION values (in yearly US dollars), which I'm sure you have already nailed down in a file somewhere, if you've been paying even marginal attention to this website.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
Sorry, just a note - off the topic. Not sure how having retirement accounts in several places around the world will be a hassle. According to "Don't put all your eggs in one basket", I would rather have a complicated financial life rather than simpler. People who had simpler finance by putting all their money in Bernie Madoff's Ponzi fund, knew what I am talking about.
It has always been advisable to collapse one's RRSP after moving to US, and this has become more and more the case with each level of foreign account reporting that has been added by the IRS over the past decade.
Once can still achieve international investment portfolio without having accounts "all over the world".
Once can still achieve international investment portfolio without having accounts "all over the world".
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
Well, we are moving to the UK so that would be retirement investments in 3 countries. The UK doesn't recognize the RRSP as tax deferred which is likely OK as long as we don't go over the capital gains exemption but the longer it grows, the more likely we will.
Plus I have heard nelsona say over and over either collapse it soon after you go or leave it until retirement because it will just be taxed more by the IRS the bigger it gets. I am thinking of taking our RRSP out in stages and then putting that money into Roths. Neither the US nor the UK will tax a Roth, I don't have to report them to the IRS, and it's just easier all around. Plus, lower fees in US investments, my fees at RBC are 1.8-2%. But I am willing to be convinced otherwise..
Plus I have heard nelsona say over and over either collapse it soon after you go or leave it until retirement because it will just be taxed more by the IRS the bigger it gets. I am thinking of taking our RRSP out in stages and then putting that money into Roths. Neither the US nor the UK will tax a Roth, I don't have to report them to the IRS, and it's just easier all around. Plus, lower fees in US investments, my fees at RBC are 1.8-2%. But I am willing to be convinced otherwise..
thanks everyone. So, Nelsona, what specifically do you think the problem would be for me to have RRSP while I am in the US. I know TFSA is not recognized by IRS and so reporting is a hassle, but with RRSP, what reporting do I need to make to IRS. Of course I will not be contributing more to it, but, what headaches I will face in just maintaining it? (from IRS point of view). I am with Questrade and I do trade stocks. Thx!
Because taking the RRSP now, before spending too much time in US, results in 25% tax. Period.
You will never get a better rate than that.
This then frees up your money to invest in US vehicles which are tax-free, like your home, Roths, etc.
the longer you hold your RRSP, every penny of it gets taxed at 25% and all the growth after coming to US gets taxed AT LEAST 25% (more like 40% after credits).
I won't go thru the analysis again, but if you are, say, under 45 yrs old, best to dump the RRSP soon after entering US. Over that age, best to convert to RRIF and take 10% withdrawals at 15% tax payments every year.
If your spouse is not working she should AUTOMATICALLY take $15-20K out each year, and pay little yax using section 217 return.
You will never get a better rate than that.
This then frees up your money to invest in US vehicles which are tax-free, like your home, Roths, etc.
the longer you hold your RRSP, every penny of it gets taxed at 25% and all the growth after coming to US gets taxed AT LEAST 25% (more like 40% after credits).
I won't go thru the analysis again, but if you are, say, under 45 yrs old, best to dump the RRSP soon after entering US. Over that age, best to convert to RRIF and take 10% withdrawals at 15% tax payments every year.
If your spouse is not working she should AUTOMATICALLY take $15-20K out each year, and pay little yax using section 217 return.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing