RRSP's....another money question.

[lincoln81 0]

I was just reading that post about Canadian debt when you move to the US. I've been thinking about money issues a lot lately. I have some Canadian debt too, but I'm still going to pay it when I move down. My question is though..what did those of you who have moved, do with your Canadian RRSP's? I was going to cash them and use the money to pay my Canadian bills until I get a job, but it seems like such a waste with the heavy tax on it. I've read that you can take them out to pay for school or a down payment on a house untaxed but does that count if the school or property is in the US? Is there the option to move it into a US RRSP without being taxed big time?

[Reba 2]

The US doesn't have RRSPs, and there is no consideration for Canadians to transfer funds into any sort of similar US account.

You can either leave them in Canada, but you'll have to do some sort of paperwork with the IRS I think every year to claim it. I never did understand that part, so I just cashed mine in and took the 25% ding on the taxes. But I waited until the new year, so that it would be income for the new year, and not tacked on to my last year in Canada and knock me up into a higher bracket.

I cashed mine and put it into a locked CD, just because I couldn't figure out what else to do with it.

Talk with the administrator of your account to find out what your options are. I do believe however that if you use the money to buy a house, that you have to pay it back within a certain amount of years, I imagine the same may be true for university tuitions.

[Flames9_RN 359]

If you leave the RRSP's in Canada (which u can do) every yr when u file ur USA taxes you fill out form 8891 (google it) Easy form to fill out. Pretty much what ur doing is notifying the IRS that you have them. The IRS wont tax you on them (until u take the $$$ out) but some have reported that some States will tax you on them, so one has to check with ur State laws!

As well you have to notify the institution that is over looking ur RRSP's and tel lthem to treat you as a Non-resident of canada. They will send you a form to fill out (W-something,lol).

And if you cash the RRSP's out (believe its best to do as a non resident) they will automatically subtract 25% for taxes. The whole thing can be a bit confusing, so its best to find a competent tax dude that is very well aware of Canada/USA tax situations--more so if ur taking the $$$ out!! But if ur just leaving it in canada, then just form 8891 is required. Soem good info can be found at: http://forums.serbinski.com/index.php?sid=...9e0066bcbee3f79 if u search for FORm 8891 on there, you should get a lot of info.

[lincoln81 0]

Thanks guys:) I think I might just cash them out then...in the new year as suggested so it won't get tacked on to this years income. Thats a good idea.

[Flames9_RN 359]

if u cash them in,while ur still a Cdn resident, i believe u will get taxed more!!

[trailmix 77]

if u cash them in,while ur still a Cdn resident, i believe u will get taxed more!!

How much he gets taxed will depend on how much he makes in 2009 and how many months he is a resident of Canada.

So say he withdraws the RRSP, he automatically gets taxed 10%.

Then he files his 2009 return (assuming he waits to withdraw the RRSP in 2009 as mentioned). The RRSP funds are counted as income so he will be taxed based on his 2009 income - with his non-refundable tax credits being pro-rated for the number of months he is actually a resident in Canada.

Unless we actually know what his income for 2009 will be, we can't really say which tax bracket his earnings will fall in to.

Could be higher, could be lower - might make no difference at all.

[Emancipation 2]

so what if the money is vested?

[Flames9_RN 359]

If ur a Cdn resident with zero income, im pretty sure u would get hit a lot more than 25%, at least thats what i recall reading somewhere--as throughout the years, you have been able to use those RRSP's as a deduction! I could be wrong,. I no longer have any, lol

[lincoln81 0]

I've done a little more research and I think if I take out the money in 09, I will get taxed around 20% withholding. Then the amount of my RRSP's will become taxable income. Since I won't be making any Canadian income in 09 except the amount of my RRSP's, I don't think I will be taxed much more. The amount will be only around $10k. So if my taxable income for 09 is around $10k then theres not much tax on that I don't think. I hope not!!

[trailmix 77]

If ur a Cdn resident with zero income, im pretty sure u would get hit a lot more than 25%, at least thats what i recall reading somewhere--as throughout the years, you have been able to use those RRSP's as a deduction! I could be wrong,. I no longer have any, lol

I've done a little more research and I think if I take out the money in 09, I will get taxed around 20% withholding. Then the amount of my RRSP's will become taxable income. Since I won't be making any Canadian income in 09 except the amount of my RRSP's, I don't think I will be taxed much more. The amount will be only around $10k. So if my taxable income for 09 is around $10k then theres not much tax on that I don't think. I hope not!!

If you were a Canadian resident with zero income in 2009 and say the non-refundable tax credits for 09 were 9,600.00 and you lived in Canada for 3 months and had no other income.

I don't know where the OP is from, but let's say he is from Ontario (using 2008 tax rates)

Federal - 15% on the first $37,885 of taxable income

Ontario - 6.05% on the first $36,020 of taxable income

So his base tax rate would be 21.05%

RRSP withdrawal - $ 10,000.00 (total income)

Prorated NRTC - $ 2,400.00

Total income = 7600.00

So without typing it all out, you would have a tax rate of 21.05% plus you have the benefit of the $2400 non-refundable tax credit so you would only pay tax on the balance of $7600, less the 10% you paid off the top when you withdrew it.

Even if he leaves the country on January 1st, still looks like a better deal than the non-resident 25%.

Edited September 10, 2008 by trailmix

[jedinite 0]

When you withdraw your RRSP they automatically withhold 15% for Federal, you'll have to check on your Provincial rate. I know Alberta is low to none.

Do it in the next tax year as you don't want to owe more tax this year if you have been working and have been earning more than around $37K. Do keep in mind that if you withdraw your RRSP out in 2009 it will count towards your world income and the IRS will need record of it. The IRS will look at that money as money you're earning, but they will take into consideration what you paid to Canadian Gov't. So say when you withdrew your money they withheld 20% then the difference between what was withheld in Canada and what you potentially owe in the US is what you will have to pay the IRS.

Canada Revenue withholds 15%

Provincial withholds 5%

Your tax bracket in the US is (hypothetically) 30%

Then you would owe the IRS 10% of your RRSP withdrawal unless you roll it into something like a Traditional IRA (highly recommended if you want to maintain your retirement fund).

In later years you can look into ROTH IRA vs Traditional IRAs. ROTH IRA is pre-taxed retirement fund money, assuming that you pulled out your entire ROTH at age 65, then you wouldn't have to pay any taxes on it because that money has already been taxed. On the other hand traditional IRA works like an RRSP, you defer your tax payments until you are going to withdraw your money, this is fine for people that will keep a low income when they are retired, but if you intend on pulling out a large sum out at your retirement then you will owe taxes according to that. Don't know about you but I'd love to pull out 1/2 Million tax free when I retire.

Anyways, that's something I wanted to mention to you because someone mentioned that the US does not have RRSP equivalent but it does, it's the Traditional IRA. Not sure if you can Transfer your RRSP into a IRA without paying taxes though, as you are only allowed a certain amount per year for your IRA unless you're in your 50s in which case there's some "catch-up" that you can qualify for.

Find a Canadian/US Tax Accountant, they will usually give you at least 1 hour free consultation. If they charge you look for someone else.

[trailmix 77]

When you withdraw your RRSP they automatically withhold 15% for Federal, you'll have to check on your Provincial rate. I know Alberta is low to none.

Yes, true, they would take about 20 percent - true of every province except Quebec, where it is higher.

But it's just witholding tax and doesn't affect the bottom line, which is that it is added as income in the tax year.

The scenario I gave above still holds true, whether they withold 20% or 77%.

In later years you can look into ROTH IRA vs Traditional IRAs. ROTH IRA is pre-taxed retirement fund money, assuming that you pulled out your entire ROTH at age 65, then you wouldn't have to pay any taxes on it because that money has already been taxed. On the other hand traditional IRA works like an RRSP, you defer your tax payments until you are going to withdraw your money, this is fine for people that will keep a low income when they are retired, but if you intend on pulling out a large sum out at your retirement then you will owe taxes according to that. Don't know about you but I'd love to pull out 1/2 Million tax free when I retire.

Anyways, that's something I wanted to mention to you because someone mentioned that the US does not have RRSP equivalent

I believe it's Reba's comment you are referring to and she actually basically said they could not roll their RRSP in to an equivalent type of fund in the U.S. - not that it does not exist in the U.S.

Edited September 10, 2008 by trailmix

[Bernie and Gary 0]

I was just reading that post about Canadian debt when you move to the US. I've been thinking about money issues a lot lately. I have some Canadian debt too, but I'm still going to pay it when I move down. My question is though..what did those of you who have moved, do with your Canadian RRSP's? I was going to cash them and use the money to pay my Canadian bills until I get a job, but it seems like such a waste with the heavy tax on it. I've read that you can take them out to pay for school or a down payment on a house untaxed but does that count if the school or property is in the US? Is there the option to move it into a US RRSP without being taxed big time?

Applicable to the locked-in RRSP's from a pension perspective, you can only claim them when you declare financial hardship. You can certainly cash in your regular RRSPs but of course with all of them you'll have to incur heavy taxes. I'm not sure about transferring for school or property in the US, but in speaking with a financial advisor, evidently you'll still end up paying for the tax component and then the CDN income taxable component as well.

In the meantime, you should think about your beneficiary assignment and a will for your investments, which should be good internationally. Therefore seek advice from a tax lawyer or accountant.

Just a reminder, I'm quite 'green' on this issue and learning as I go....

Good luck and let me know if you find some good solid answers.

Cheers!

[Texanadian 10]

Some good answers so far, but more details would be better.

Canada non resident tax is 25%. There is no non resident tax in British Columbia. Your own province may have non resident tax.

If you pull the money out the year you move, it just gets added on to your taxable income just like it would had you never left Canada. If you're in the bottom tax bracket, this may be beneficial. In BC, for example it would be taxed at 15 federal and 5.7% BC. So 20.7%. This is better than paying 25% non resident tax.

If you have a lot of money in your RRSP and/or you make a large salary. Let's say 150,000 a year salary and 50,000 in your RRSP, it would be better to withdraw it after you move to the US. That way you'd just pay the 25% non resident (federal) tax and that would be it. This is why people in Canada who are ready to retire with very large RRSP's can move to Florida and pay 25% on their RRSP instead of 43% (29% fed, 14% BC)

The only way you can get taxed at 15% non resident tax on an RRSP is if you set it up as a lifetime annuity payment, which is unlikely given the average age of a VisaJourney member.

There are more reasons you want to get your RRSP out of Canada quickly.

• The non resident tax is currently 25%. It used to be 15%. It may rise in the future. It's an easy way for the government to tax people who won't complain much. Not much voter frustration at raising the non resident tax rate.
• Management expense ratios are MUCH cheaper in the USA than they are in Canada. You'll pay half as much in the US. Or even less. In Canada I paid a 2.7% MER with a back door defered sales charge. In the US, I pay 1.35% with a no load sales charge.
• As a non resident of Canada, you won't be allowed to change funds (assuming you have it in mutual funds). So whatever you have now, you'll be locked into those funds.
• While Canada lets your RRSP's grow tax free, the USA sees them as a simple savings account without the tax deferred status. They do tax you on it as common interest. They will tax you on unrealized gains as well. Now there is a way to defer this on your US federal taxes. But it's just more paperwork to deal with.
• States will also charge you state income tax on your RRSP's. Very few states let you defer foreign income. Although in my case, Texas doesn't have a state income tax.

Chances are you'll need the money in the US for something. A downpayment on a house, could put the money into an IRA or ROTH IRA. I imagine you could take it out of an IRA and use it as a downpayment. Although I believe it needs to be in an IRA for a certain amount of time first.

Don't forget that in Canada, you can carry unused contributions forward for another year. Can't do that in the US. It's $5,000/year max contribution regardless of what you put in last year. So you may want to put that money to work in an IRA soon. It's also nice to be completely free from having 2 countries to deal with income tax wise.

One last tidbit before I go. If you do decide to withdraw your RRSP after moving to the USA, and you have it in mutual funds. I'd recommend switching funds before you cross the border. Say you own Canada small cap mutual funds. Exchange them for Canada large cap mutual funds and then cross the border. When you sell your mutual funds in the USA, they will count the capital gain based on when you bought the fund, not when you cross the border. If you just switched funds 3 days before crossing the border, you'll only have 3 days worth of capital gain (pennies).

[Emancipation 2]

so what if the money is vested?

Answered my own question.. Manulife will give it to me (less 25%). Just have to get my former CDN employer to send a notice of termination of employment letter to them (duh). They said they would mail me a check when that's all completed. *sigh.. i THINK that's all the leftovers from Canada now