I am moving to the USA from Canada. What should I do with my RRSP?
For new American residents, RRSP’s can be tricky. But if you haven’t moved South yet, don’t panic! Just plan ahead. If you have already moved, keep reading, and reach out to us to help you get things settled.
Let us help you with 5 steps you will need to take to ensure a smooth transition to the USA with your RRSP in tow.
Step 1: You don’t need to close your RRSP when you move to the US.
Great news! You can keep your RRSP open in Canada while you are living in the US and your earnings will grow tax deferred. But it’s not as easy as just “leaving it alone” to grow.
There are several things that you need to be aware of as you make a decision about your RRSP. Carefully review the steps in this article and consider contacting us at Huston Wealth Management to discuss your options.
Step 2: Quickly get to know the US tax rules for a US resident who holds an RRSP.
- You cannot complete a transfer or rollover of your RRSP into a U.S. registered account.: Though there are U.S. registered accounts that are similar to an RRSP (Traditional IRA and 401(k)), the Canada Revenue Agency (CRA) does not allow tax-free rollovers or transfers to them. Any transfer would be taxed in Canada as a distribution.
- Pay Back any Home Buyer Plan (HBP) distributions: If you have taken advantage of the Home Buyer’s Plan (HBP) while a resident of Canada, you will need to pay that money back into your RRSP before becoming a non-resident. Otherwise, the CRA may tax you on that amount.
- Consider maxing out your RRSP contribution within 60 days of moving to the U.S.: You can still make a contribution to your RRSP after you leave the U.S. and claim the deduction on your Canadian tax return. But you only have until 60 days after the end of the calendar year to do this.
Source for Step 2 – Investopedia
Step 3: You Can Still Make Contributions to your RRSP while living in the U.S., but be careful.
Once you move to US, you can still make contributions to your RRSP, up to the annual RRSP contribution limit. However, be aware that these contributions may be deductible in Canada, but the deduction may not be the same if you are looking to use it on your U.S. tax return. The Canada-USA tax treaty requires that you meet certain criteria in order to deduct RRSP contributions in the U.S. Additionally, the amount of the allowable deduction would be equal to the allowable deduction for a Traditional IRA.
Besides the tax deductibility of RRSP contributions, there are earnings to consider. The U.S. may allow earnings in your RRSP to grow tax deferred, but in order to qualify, you must report the existence of your RRSP each year to the Internal Revenue Service (IRS). This report is made on foreign bank account reporting forms (FBARs).
Supporting Source – Serbinski Accounting
We know that these requirements can be complex, so work with our tax specialists who can guide you through your move.
Step 4: Know before you open: Traditional IRA or 401(k) in the U.S.
Traditional IRA: A traditional IRA is similar to an RRSP. However, should you choose to open one, your contributions will be tax deductible in the US, but may not be deductible against your Canadian income.
401(k): A 401(k) is similar to an RRSP, but is only offered through an employer. Should you choose to open a 401(k), your contributions will be tax deductible in the U.S. and may be tax deductible in Canada as well, if certain conditions are met. Keep in mind that if you used your 401(k) contributions as a deduction on your Canadian tax return, your deduction is limited by your RRSP contribution limit (minus any RRSP contributions).
Step 5: Consider consolidating your Canadian and US accounts with one Cross-Border Financial Advisor.
Sometimes our financial lives are too complicated to keep thinking about them. But the worst move you can make is to do nothing. That could spell H-E-A-V-Y tax consequences down the road. We know all of this takes time and planning. Time you probably don’t have since you’re planning a move!
That’s where a dual licensed USA-Canada, cross-border financial advisor comes in. By working with Raymond James USA, you can hold your US retirement accounts AND your Canadian retirement accounts with one advisor.
So, let us do some of the legwork for you and allow our tax professionals to offer some guidance. We’ll work behind the scenes while you work on getting settled in the USA.
Disclosure: The information above is from sources believed to be reliable, however, we cannot represent that it is accurate or complete and it should not be considered personal tax advice. We are not tax advisors and clients must seek independent advice from a competent professional advisor on tax-related matters before withdrawing from their U.S. retirement plan.
Disclosure: This material has been prepared by Dean Huston and expresses the opinions of the authors and not necessarily those of Raymond James Ltd. (RJL). Statistics, factual data and other information are from sources RJL believes to be reliable but their accuracy cannot be guaranteed. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. This newsletter is intended for distribution only in those jurisdictions where RJL and the author are registered. Securities-related products and services are offered through Raymond James Ltd., Member-Canadian Investor Protection Fund. Insurance products and services are offered through Raymond James Financial Planning Ltd., which is not a Member-Canadian Investor Protection Fund.
Raymond James (USA) Ltd. advisors may only conduct business with residents of the states and/or jurisdictions in which they are properly registered. Raymond James (USA) Ltd. is a member of FINRA/SIPC
