Registered Retirement Savings Plan / Registered Retirement Income Fund Analysis

Owning Canadian registered plans while being a US taxpayer can be confusing and costly, without the proper advice.

The Internal Revenue Service considers Canadian retirement plan accounts to be foreign trusts and does not grant the tax deferral of income and growth that Canada Revenue Agency recognizes. Consequently, when interest, dividends, or realized capital gains are earned within a retirement plan account, you will be taxed on that income each year as though it were not in a retirement plan account. As a US resident, you will be taxed on your worldwide income. Because the retirement plan accounts are treated like any other brokerage or investment account, you can withdraw the principal from your accounts tax free from a US standpoint. As a nonresident of Canada, lump-sum withdrawals from a retirement plan account will be subject to a 25% nonresident withholding tax, instead of the much higher tax rate you would pay as a resident of Canada. The amount you contributed, as well as any interest, dividends and recognized capital gains accrued up to the date of entry into the US, is considered principal for US tax purposes. As a US resident, you can withdraw the full amount from your plans and take advantage of the various investments available in the US.

Our analysis will consider various options (defer, cash out immediately, and cash out over time) to estimate the best after-tax result. The analysis takes into consideration, estimated rate of return, tax rates, and foreign tax credit utilization. We also make an estimation of the US cost basis of your registered plan.

In addition to the financial analysis, we explain how Canadian registered plans are taxed in the US, as well as list a number of other potential problems that need to be addressed when owning a Canadian registered plan in the US. We explain the pros and cons of each choice and finish with our recommendations.

If you are interested in having Cross Border Tax & Accounting analyze your registered account and providing recommendations, please contact Barbara Madden at 1-800-394-9462 or email her at barbaram@keatsconnelly.com.

Cross-Border Series
Our cross-border series books are tailored to specific issues Canadians have when moving to, living in or investing in the US.