Hi all: ROaming around the internet, I found this site, and hope someone can help me. I have read all the posts regarding RSP's coming and going, and cannot really find the answer, so I apologizie if this is redundant.
My daughter and son-in law are US citizens who have lived in Montreal for 3.5 years. They both had work visas and had jobs. They wanted to buy a house in Montreal, so money was put into an RSP for them Feb, 2005. NOw they want to return to US and buy a house here, but seems like the Money is stuck forever in RSP in Canada? It would be a first time home purchase, and they need the money now for house in US. They were told that if the money was for a first time home purchase, it could be withdrawn, tax free? Tax deferred? How do they get the money into the US without paying the penalties of early withdrawal from RSP? Is there a hardship provision? Many thanks for your help. Barvara
Help for my Daughter and Son-in-Law.RSP Issue
Moderator: Mark T Serbinski CA CPA
The Home Buyers Plan (HBP) is only for Cdn RESIDENTS, so the fact that they are ceasing residency in Canada doesn't help them.
The money is not 'stuck' in canada. After they leave, they should simply withdraw all the RRSP, and pay 25% tax on it. This is less than the tax they saved putting the money in RRSP, so they come out ahead.
There are no penalties for early withdrawal from an RRSP, the money is simply taxed, like any other income. There is no need for hardship provision, since they are not undergoing any penalty.
In fact, if they used HBP and then became non-resident, the entire amount WOULD be taxable at their income rate, which would be higher than 25%.
Let them move to US, THEN take the money fro mthe RRSP (less 25%) and be done with it.
<i>nelsona non grata... and non pro</i>
The money is not 'stuck' in canada. After they leave, they should simply withdraw all the RRSP, and pay 25% tax on it. This is less than the tax they saved putting the money in RRSP, so they come out ahead.
There are no penalties for early withdrawal from an RRSP, the money is simply taxed, like any other income. There is no need for hardship provision, since they are not undergoing any penalty.
In fact, if they used HBP and then became non-resident, the entire amount WOULD be taxable at their income rate, which would be higher than 25%.
Let them move to US, THEN take the money fro mthe RRSP (less 25%) and be done with it.
<i>nelsona non grata... and non pro</i>
Well thank you very much. Very appreciated.
It is still a hard situation, as I gave them a gift of $50,000 for adown payment, and they said the RSP is the way to go in Canada for first time buyers, so now they have to pay $12,500 .. I could have just gifted it to them over a few years, with no tax. I do see your point of the 25% being less than what they received in tax savings, but would have been good to have both benefits, although I'm glad they are returning closed to the family. Thank you.
As long as I have you: My darling Daughter and Son inlaw have paid Canadian Taxes all the time in CA, but failed to realize they needed to file US tax return... so they have 4 years of no US return. They both have filed in US before, so IRS has them in the file. Any suggestions? Thank you.
It is still a hard situation, as I gave them a gift of $50,000 for adown payment, and they said the RSP is the way to go in Canada for first time buyers, so now they have to pay $12,500 .. I could have just gifted it to them over a few years, with no tax. I do see your point of the 25% being less than what they received in tax savings, but would have been good to have both benefits, although I'm glad they are returning closed to the family. Thank you.
As long as I have you: My darling Daughter and Son inlaw have paid Canadian Taxes all the time in CA, but failed to realize they needed to file US tax return... so they have 4 years of no US return. They both have filed in US before, so IRS has them in the file. Any suggestions? Thank you.
But putting in $50,000 in an RRSP they got well over $18,000 in tax savings, so they are coming out ahead by far in this situation. They stumbled into a good way to make money. Don't let their whining con you into giving them more money.
As to their US tax situation, yes they should have filed every year and should be going back to the years they didn't file. They can avail themselves of Foreign Earned income exclusions (form 2555) and/or foreign tax credit (form 1116) to reduce their US tax liability to pretty much ZERO. I would fx all this before filing the 2005 tax return next April.
<i>nelsona non grata... and non pro</i>
As to their US tax situation, yes they should have filed every year and should be going back to the years they didn't file. They can avail themselves of Foreign Earned income exclusions (form 2555) and/or foreign tax credit (form 1116) to reduce their US tax liability to pretty much ZERO. I would fx all this before filing the 2005 tax return next April.
<i>nelsona non grata... and non pro</i>