 Moving Your IRA Some of the most popular questions we field is "should I withdraw
my IRA?" or "can I move
my IRA to a Canadian RRSP" Unfortunately, the answer to these questions
requires considerable thought and a thorough understanding of your
unique financial situation to see what opportunities or obstacles
exist. There simply is no general answer for all. One fact to confirm is that you can move a US IRA
to a Canadian RRSP. The current rules and regulations
do allow an IRA to be rolled over into a Canadian RRSP but how you
are taxed depends on whether you are a US citizen or not. If you are
a US citizen, you are taxed on the full amount withdrawn plus any
early withdrawal penalties that may apply. The other thing to
consider is when you have withdrawn your IRA,
what will you do with the money? If you relinquish your tax
residency in the US, it is possible to move your entire IRA to
Canada at a flat 15% Treaty mandated withholding rate in the US. The
entire distribution is taxable in Canada but with proper planning,
the distribution can offset with an RRSP deduction, resulting in no
tax payable in Canada. This is a complicated strategy and a
qualified transition planner should sought beforehand. The answer depends, again, on your
individual financial situation and what your overall goals and objectives
are. Some people decide just to leave their IRAs in the US and forget
about them. That may be a prudent strategy depending on what you
are trying to achieve. Here are some other considerations:
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By becoming Canadian residents and leaving your IRAs in the
US, you are subject to the possibility of a double estate tax
on a continuing basis. The new Canada/US Tax Treat y does
not allow offsetting credits between IRA/pension-type income
declared in Canada
and US estate taxes, in effect, creating double taxation.
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The US Securities and Exchange Commission has some
regulatory requirements restricting American brokerage firms from selling investments
to Canadian residents. This may mean your account is
prohibited from conducting any transactions.
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There are several administrative duties you must fulfill
every year as long as you keep any accounts in the US. First,
you are required to report these accounts on your tax return
to the Canadian government. This should not be missed under any circumstances
since the penalties for doing so are severe.
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There is also currency risk you could incur. If you are
intent on retiring in Canada, it means your future expenses
will need to be met with Canadian loonies. If you leave a large part
of your assets in American currency, it exposes you to
unnecessary currency risk.
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In general, Canadian mutual funds cost you more than twice
the management and administration fees than do comparable
US mutual funds. Therefore, a substantial annual reduction
in your investment expenses is available for your portfolio
on the US side of the border (see the Investment Planning
section). For example, $100,000 in Canadian mutual funds would
cost you approximately 2% to 3% or $2,000 to $3,000 per year,
whereas a US mutual fund would be approximately 0.25% to 0.75%
or $250 to $750 per year or less.
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One final risk that you take by leaving your
RRSP in Canada is that of government risk. In other words, you
are at the mercy of the US government's ability to change, for
example, the withholding or other relating rules. |
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Finally, simplifying your life by consolidating
all of your assets in Canada at one brokerage firm has benefits
most don't realize until they do it. With a simplified financial
picture, it makes understanding it easier which allows you to
have more control over what happens. This tends to reduce stress
and bring a lot of peace of mind to you. |
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