Tax treatment of RRSP converted to RRIF for parents moving to USA from Canada

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amcquaid
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Joined: Sat Dec 26, 2020 11:37 pm

Tax treatment of RRSP converted to RRIF for parents moving to USA from Canada

Post by amcquaid »

My parents have several millions of dollars in RRSPs. They are both in their late 60s. I am a dual Canadian/USA citizen and I am considering sponsoring them for green cards. One of their main concerns is how this would effect their RRSP and other assets. I read here:

viewtopic.php?f=2&t=11385

That you can convert the RRSP into an RRIF and then depending on how you structure the yearly payout you can either pay 15% or 25% Canadian withholding tax. It is also stated that the value of the RRSP/RRIF is "tax free" in the USA and that only subsequent growth in the account is taxable in the USA.....is this correct?

I also read (somewhere else) that you can take a large disbursement in the year that you convert the RRSP into a RRIF. If this is true can you elaborate on how this is done.

It would be ideal to for example convert the RRSP to a RRIF and take out 2.5 million during that year and pay 15% tax to Canada while not paying any tax on that 2.5 million to the USA.....would that be possible?

Thanks in advance for your help.
nelsona
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Location: Nowhere, man

Re: Tax treatment of RRSP converted to RRIF for parents moving to USA from Canada

Post by nelsona »

The book value of RRSPs or RRIFs should be evaluated on the day they would become US taxpayers (let's say the day they get their GC). The US taxation thereafter would be based on the change in value after that date. If some of these RRSPs are from pension rollovers, they are always 100% taxable in US when withdrawn.

Once they convert to a RRIF, in the SECOND year, they are eligible to take out up to 10% of the Beginning-of-year value, at 15% Cdn flat tax. Once one reaches 70, that withdrawal percentage increases year-by-year.

The portion that has grown would be taxed in US as pension. with the Cdn tax eligible as foreign tax towards their itemized deduction for the year.

There is no provision to remove any RRIF tax free or at 15% during the first year of its creation. Any thing withdrawn in that first year will be taxed at 25%. So planning is needed to create the RRif in the year or years prior to moving.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D
amcquaid
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Joined: Sat Dec 26, 2020 11:37 pm

Re: Tax treatment of RRSP converted to RRIF for parents moving to USA from Canada

Post by amcquaid »

When you say book value are you talking about the cost basis of a stock or the market value of the stock on the day they get their green card. They put lots into Tesla so the cost basis would be very low while the actual value would be very high.

Restating the above say there is one share in the RRSP and it was purchased for 10 dollars and its current market value is 1000 dollars. Would I be liable for 990 dollars of tax in the US or 0 dollars?
llll
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Joined: Sun Dec 27, 2020 7:37 pm

Re: Tax treatment of RRSP converted to RRIF for parents moving to USA from Canada

Post by llll »

amcquaid wrote:
> When you say book value are you talking about the cost basis of a stock or
> the market value of the stock on the day they get their green card. They
> put lots into Tesla so the cost basis would be very low while the actual
> value would be very high.
>
> Restating the above say there is one share in the RRSP and it was purchased
> for 10 dollars and its current market value is 1000 dollars. Would I be
> liable for 990 dollars of tax in the US or 0 dollars?
Can someone please help me answer this question - viewtopic.php?f=2&t=425525
amcquaid
Posts: 5
Joined: Sat Dec 26, 2020 11:37 pm

Re: Tax treatment of RRSP converted to RRIF for parents moving to USA from Canada

Post by amcquaid »

Follow up question. Assume that book value is low and one wants to increase book value to match market value. Can you just sell your current stock in company A and rebuy that stock on the same day?

Are you required to buy stock in a different company? If so how long are you required to hold it for?

Thanks in advance for your time and knowledge.
nelsona
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Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Tax treatment of RRSP converted to RRIF for parents moving to USA from Canada

Post by nelsona »

For winners, you can crystalize and rebuy the same investment the same day. It is losing positions that you must wait in order to clim a cap loss. Besides a cap loss would not apply in a TFSA or RRSP.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D
amcquaid
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Joined: Sat Dec 26, 2020 11:37 pm

Re: Tax treatment of RRSP converted to RRIF for parents moving to USA from Canada

Post by amcquaid »

Thanks for the clarification Nelson!
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