Should my unemployed wife withdraw her Canadian RRSP

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czilin
Posts: 11
Joined: Tue Apr 01, 2014 6:49 pm

Should my unemployed wife withdraw her Canadian RRSP

Post by czilin »

Hi there,

My wife came to US in Jan 2014 and her Canadian income in 2014 is roughly $4000. She is not having and will not have any other income in 2014. We just bought a home with down payment borrowed from a bank loan about $40K (interest rate 4.5%). My wife has RRSP about $30K in Canada that is not locked, meaning she can withdraw it completely. I wonder if it's a good choice for us to withdraw it to pay down the $40K loan.

I heard the withholding tax is 25% when withdraw RRSP, is that always the same 25%? When my wife reports her 2014 Canadian tax next year, she needs to report $34000 as income, right? What's the actual tax rate with that income? If it's less than 25%, will she get the refund for sure? How about her US tax obligation? Does she need to report $34000 income to IRS too? Can she get Canadian tax return and then use it to cover up her US tax?

What's her best choice?

Thanks very much!
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

She became a non-resident of Canada in January, so she will not report her RRSP income n a Cdn tax return, unless she makes a special election. She will have 25% withheld as NR flat tax.

if she elects (using 217 election), she can include the income on her 2014 departure return, and treat it like normal income. it would likely be taxed a little less that 25% so she would get a small refund.

For US she would only report gains from 2014 in the account, so not likely very much, and the Cdn tax would be a credit. She will also report any of the income she earned in Canada on your joint tax return.

If I were her, If she doesn't think she will be working for the next few years, she could take out about 10-12K over the next 3 years tax free in Canada, as this would match her personal deduction. My wife did this for a larger RRSP over 6-7 year and ended up paying almost no tax.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

as to what to do with the RRSP money, putting it in the house would not be a bad idea.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
czilin
Posts: 11
Joined: Tue Apr 01, 2014 6:49 pm

Post by czilin »

Thanks very much for the information!
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