A family friend has approached me about her RRSPs. After working many years in Canada, they are back in the U.S. They will not live in Canada again. She wonders whether or not she and her husband should keep their RRSPs or collapse them and bring the proceeds down to the U.S.
As I see it, there are two considerations:
1. The relatively high value of the Canadian dollar vis-a-vis the U.S. dollar would lead one to argue that now is a good time to collapse the RRSPs and bring the proceeds south. However, the strong value of the Canadian dollar could be secured by investing in mutual funds that buy U.S. securities.
2. Their Tax Rate. They expect to retire in 5-6 years and will be in a lower tax rate during retirement. This would lead one to leave their RRSPs intact until they retire and pay lower tax in the U.S.
Administration of the RRSPs is not a huge issue as they collect CPP and will need to file Canadian returns for the rest of their lives.
Am I missing any issues that they should be considering when making their decision?
Thanks,
Arteeh
U.S. Citizens & Residents with RRSPs
Moderator: Mark T Serbinski CA CPA
Re: U.S. Citizens & Residents with RRSPs
[quote="Arteeh"]A family friend has approached me about her RRSPs. After working many years in Canada, they are back in the U.S. They will not live in Canada again. She wonders whether or not she and her husband should keep their RRSPs or collapse them and bring the proceeds down to the U.S.
As I see it, there are two considerations:
1. The relatively high value of the Canadian dollar vis-a-vis the U.S. dollar would lead one to argue that now is a good time to collapse the RRSPs and bring the proceeds south. However, the strong value of the Canadian dollar could be secured by investing in mutual funds that buy U.S. securities.
2. Their Tax Rate. They expect to retire in 5-6 years and will be in a lower tax rate during retirement. This would lead one to leave their RRSPs intact until they retire and pay lower tax in the U.S.
Administration of the RRSPs is not a huge issue as they collect CPP and will need to file Canadian returns for the rest of their lives.
Am I missing any issues that they should be considering when making their decision?
Thanks,
Arteeh[/quote]
Why do you think that they need to file Canadian tax returns for the rest of their lives? CPP is not taxable in Canada for residents of the US, nor is there a withholding tax.
The Canadian withholding rate on RRSP withdrawals will be 25% or 15% on minimum RRIF withdrawals (I believe up to 2x the minimum actually?). The w/h tax will be creditable against US Federal tax which will be due on the earnings/growth portion of the RRSP withdrawals (assuming full deferral elections were exercised on the RRSP's). I would tend to support option #2, as it may result in less US net tax after retirement, as well as maximize the deferral offered by the RRSP's.
Consideration should also be given to any State tax.
As I see it, there are two considerations:
1. The relatively high value of the Canadian dollar vis-a-vis the U.S. dollar would lead one to argue that now is a good time to collapse the RRSPs and bring the proceeds south. However, the strong value of the Canadian dollar could be secured by investing in mutual funds that buy U.S. securities.
2. Their Tax Rate. They expect to retire in 5-6 years and will be in a lower tax rate during retirement. This would lead one to leave their RRSPs intact until they retire and pay lower tax in the U.S.
Administration of the RRSPs is not a huge issue as they collect CPP and will need to file Canadian returns for the rest of their lives.
Am I missing any issues that they should be considering when making their decision?
Thanks,
Arteeh[/quote]
Why do you think that they need to file Canadian tax returns for the rest of their lives? CPP is not taxable in Canada for residents of the US, nor is there a withholding tax.
The Canadian withholding rate on RRSP withdrawals will be 25% or 15% on minimum RRIF withdrawals (I believe up to 2x the minimum actually?). The w/h tax will be creditable against US Federal tax which will be due on the earnings/growth portion of the RRSP withdrawals (assuming full deferral elections were exercised on the RRSP's). I would tend to support option #2, as it may result in less US net tax after retirement, as well as maximize the deferral offered by the RRSP's.
Consideration should also be given to any State tax.
Agreed.
The argument about the relative strength of the CAD at this time has no bearing on whether to withdraw or not.
If one feels that the US is a good investment now, simply move your RRSP holdings into US-invested mutual funds within the RRSP. If not keep themm in Cdn-invested mutaul funds, or some other foreign-invested mutual funds, again within the RRSP.
The physical location of the money (in an RRSP) doenot make it, in an of itself, vulnerable to currency fluctuations: the investments within it DO.
Since the person's Cdn tax is about to be lowered to 15% (at the most, since one can still file 217 if not making other too much other income), I would hold off, or start taking the RRIF withdrawals, not collapse the whole thing in one shot.
The argument about the relative strength of the CAD at this time has no bearing on whether to withdraw or not.
If one feels that the US is a good investment now, simply move your RRSP holdings into US-invested mutual funds within the RRSP. If not keep themm in Cdn-invested mutaul funds, or some other foreign-invested mutual funds, again within the RRSP.
The physical location of the money (in an RRSP) doenot make it, in an of itself, vulnerable to currency fluctuations: the investments within it DO.
Since the person's Cdn tax is about to be lowered to 15% (at the most, since one can still file 217 if not making other too much other income), I would hold off, or start taking the RRIF withdrawals, not collapse the whole thing in one shot.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best