When you are living in the US, there are a plethora of savings vehicles including 401(k)/403(b)/457 plans, IRAs (traditional, Roth or SEP) and SIMPLE plans. But how do you save in Canada? The last remaining savings vehicle in Canada is the Registered Retirement Savings Plan or the RRSP. This vehicle allows you to save 20% of last year’s salary up to a maximum of $20,000 in 2008 ($21,000 in 2009). Since your contribution is based on last year’s salary, you won’t be able to contribute anything to an RRSP in the first year you move there. Further, if you are an American citizen, you still have to file US tax returns so you should be aware that the IRS does not automatically recognize the tax-deferred status of RRSPs in the US (see income tax section). As a result, there is a host of additional paperwork you have to file with your US return annually. There is also the alternative to contribute to a spousal RRSP if that makes sense in your situation. RRSPs are just the type of account and you are free to invest in most stocks, bonds and mutual funds.

One common question we field is “Do my IRAs and other retirement plans maintain their tax-deferred status in Canada?” The answer is generally yes, with one exception: Roth IRAs (although this appears gray as well). However, it is our hope that with the 2008 budget announcement by the Canadian government of “Tax Free Savings Accounts,” it will be interesting to see if the tax-free status of Roth IRAs is confirmed by CRA and Tax Free Savings Accounts by the IRS.

In the US, IRA required minimum distributions must occur at age 70 ½ whereas it is 71 when RRSPs need to be converted to a Registered Retirement Income Fund (RRIF) and minimum withdrawals commenced.

CPP and OAS (as they are affectionately known) are the two Canadian government pension plans similar to Social Security in the US. If you work in Canada, you will qualify for a CPP benefit in addition to any Social Security benefit you may derive from the US (yes, you still collect even if you live in Canada). This is due primarily to the Canada-US Totalization Agreement which coordinates the government benefits between both countries.

OAS, on the other hand, is based purely on how long you live in Canada. To qualify for full OAS benefits, you have to live in Canada 40 years after the age of 18. Otherwise, your benefit is pro-rated based on the actual time you live in Canada. Both CPP and OAS are fully taxable on your Canadian return but any US Social Security benefits qualify for a 15% deduction on your Canadian return.

Interesting Links