Moving to US on a K-1 Visa & not sure what to do with RR

Worf1108 · Post by **Worf1108** » Tue Jun 13, 2006 12:58 am

Hello there,

I have spend the last while digging through different posts and wanted some advice on what to do in regards to cashing in my RRSPs.

My situation is that I currently have about $9500 in RRSPs (not much) and want to cash these in to help me settle in down to the US at the end of July 2006 (I can't work for about 3 months till I get my work authorization) ...

I made about 55k last year and would be at the same rate this year if I were to stay the full year. I am trying to figure out it I should be cashing them in prior to leaving Canada or wait till after I arrive in the US ...

1) Cash in prior to leaving Canada

if I cash them in before I leave it is my understanding that I would have to pay 20% off the top and then be hit with further canadian income tax for 2006 return.

2) Wait till after arriving in the US

I have also heard that if were to wait till the day after I arrive in the US and contact my bank and have them cash them in for me that I would only be hit with a flat 25% off the top and not have to claim this on my canadian income tax. But how much would this affect my US income tax for 2006.

We are trying to figure out which option would result in paying the least amount of income tax to either Canada or the US.

nelsona · Post by **nelsona** » Tue Jun 13, 2006 6:52 am

If you were to cash out before leaving the your cash out would be subject to fed and prov tax at your marginal rate. Since you likely have made more that $30.000 you would owe more thn 25%. But you can easily do the calculation yourself using last years return.

As you say, if you do it after you leave (become non-resident) you will be subject to 25% flat tax. I would wait a few weeks after leaving if this turns out to be the right way. I wouldn't do it 'the next day'.

In US you would only be subject to IRS and state taxation on the growth after you became US tax resident (which would likely be Jan 01, 2006-- last January, since your spouse will undoubtedly wish to lfile jointly with you for all of 2006 to save on their tax). You really have already become a US tax resident.

So, it is your call: do a quick return for this year and see if your extra $9500 will add more or less than $2300 to your tax bill.

Worf1108 · Post by **Worf1108** » Tue Jun 13, 2006 9:22 am

Thank you for the info ...

I calculated out that by the time I leave Canada I will be over 30k without the RRSPs being cashed in ...

I did a quick return with last years (2005) info and cashing in the $9500 in RRSPS. It came up a difference of almost $3000.00 owing ... Which is almost 30% ...

So I guess it sounds like waiting till I enter the US would be a smarter option ... But you say I would have to pay taxes in the US on the intrest that I made since January 2006 on my RRSPs ?

Wow this is some confusing stuff ... We will definately be getting a Canada/US expert to be doing our tax return for 2006 ...

nelsona · Post by **nelsona** » Tue Jun 13, 2006 9:34 am

For your 2006 US taxes, you wil have a choice as to how to file, since you will be in a dual-status year.

The decision will be dictated on how much filing jointly saves on your toatl 'coupled' US taxes over filing separately. It is usually extreemly beneficial to file jointly.

But, if you choose to file jointly, it willbe for the entire 2006, so all your income from 2006 will be reported to IRS. (Your wages will then be exempted from US taxation thru form 2555, but not your RRSP income, which would include any interst and dividends earned from 2006, plus anycap gains you trigger when selling staock/funds inside your RRSP). You would also report any other income you make in 2006, before or after your move.