US/CAN citizen... liquidating RRSP and LIRA

[jcyr]

Started off as Canadian citizen and accumulated approximately $260,000 CAN (current value) in RRSP and LIRA accounts. Some 20 years ago I moved to the US and gained US citizenship.

Early on there were IRS queries about these foreign accounts, to which I responded pointing to Canada-US treaty law. There have been no further IRS inquiries regarding these accounts.

I intend to remain in the US and will be retiring and the end of 2016. What would be the best way to liquidate these accounts in order to both minimize my combined tax burden, and also minimize the required paperwork?

[nelsona]

You would first need to know the value of your accounts when you first arrived in US. This can be withdrawn tax-free in US (prorated on your withdrawal).

Then you need to convert your RRSPs and LIRA to RRIF and/or LIF. This gets you 15% Cdn tax.

I'm sure you have been reporting the existence of these accounts on your FBAR form every year. You will need to continue to do this.

Then it is simply a matter of drawing down your accounts like a pension, paying 15% to canaf (it will be withheld), and then reporting the entire amount on your 1040 as gross pension income, and the net amount as the taxable portion. You then use the 15% Cdn tax as a credit using form 1116 against the US tax that you will owe.

[Fug1]

Nelson, I was curious about your first statement regarding the value of the account after arriving in Canada. Wouldn't this amount also be subject to the 15% withholding in Canada? How would this amount be reported on a US tax return if it's tax-free? Thanks!

[nelsona]

Re-read what I said:

ALL of your RRSP/RRIF/LIF/LIRA withdrawal is subject to cdn tax. that is a given. How you structure your accounts and how much you withdraw will affect whether it is taxed at 15% or 25%, but it is ALL taxable in Canada.

It is **in the US**, that your RRSP will have a starting value that is not taxable in US (your LIRA doesn't have a starting value, it is all taxable in US).

So, just to amend my previous response:
You would first need to know the value of YOUR RRSP when you first arrived in US. This AMOUNT can be systematically withdrawn tax-free **in US** (prorated on your entire RRIF withdrawal).

[nelsona]

... and I did say after arriving in US NOT Canada.

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