RRSPs

[CDAgirlMI 51]

Ok,

I just spent the past hour or so reading previous threads about RRSP & moving to the US, etc...

After reading, I'm still not sure if I should pull them out, or leave it in Canada.

I understand if I take them out I'll be taxed 25%. I'm not sure if I'll be taxed State-wise(I'm in Michigan)...still trying to figure that part out.

BUT...

1. I won't be working till maybe June. So I won't have any income for 1/2 a year. Will pulling out RRSPs during this time be beneficial?

2. The Canadian dollar is doing not-so-bad right now. Even though I'd have to pay tax, would it still be worth it, if it means getting a good exchange rate?

Any comments would be appreciated. I know that I can(& I will) talk to a financial advisor, but I'd like to hear what anyone else here thinks first.

[Revenesque 2]

Here's my thoughts on the matter:

After reading, I'm still not sure if I should pull them out, or leave it in Canada.

It depends...do you need the money? If not, best to leave them intact.

I understand if I take them out I'll be taxed 25%. I'm not sure if I'll be taxed State-wise(I'm in Michigan)...still trying to figure that part out.

They'll tax you initially at 25%, but your true tax payable depends on your tax margin when you file your Canadian income taxes. As for being taxed in the US, my understanding is that the IRS now recognizes them as a registered retirement vehicle and will no longer tax any income earning inside of it. However, if you are already a US resident for tax purposes, yes you will be taxed on the withdrawal because it will be reported as income.

BUT...

1. I won't be working till maybe June. So I won't have any income for 1/2 a year. Will pulling out RRSPs during this time be beneficial?

Do you have any other means of support (e.g. Canada's EI, personal savings or your husband's earnings?) If not, then withdrawing your RRSP is an option.

2. The Canadian dollar is doing not-so-bad right now. Even though I'd have to pay tax, would it still be worth it, if it means getting a good exchange rate?

Your first reason for withdrawing your RRSP should be whether you need the funds or not. The exchange rate fluctuates everyday, so that shouldn't be your primary reason.

Edited February 24, 2010 by Revenesque

[CDAgirlMI 51]

Thanks for the reply. The only thing we'd need the money for would be a house, but we're not avidly looking right now.

[Texanadian 10]

Count in the group that says to take the money out.

If your normal tax bracket is less than 25% in Canada, then take it out in Canada before you go. It will be taxed along with your Cdn job income for that year.....If you're in a high tax bracket, take it out after you leave and you'll get the lower taxed 25% rate (instead of say 40% fed+prov bracket you might be in.)

Chances are you'll get to claim the full basic personal exemption for the year in Canada since most of your worldwide income will be Canadian. You only get the pro-rated amount if you start working in the US in the same year and make a good sum of money. Section 217 in Canada for all that info. Taking out your RRSP increases the percentage of your money being Canadian, which helps with the 217.

You'll be paying higher MER fees in Canada than in the USA. This can be considerable. Say you have $20,000 sitting in an RRSP. At 2% in Canada vs 0.8% in the USA, the difference will be $400 in Canada vs $160 in the USA.

You won't be able to change any of the funds that you are currently invested in after you leave. You're locked in those choices. In the US, you can change to any fund at any time.

What if the Cdn government decides in this time of deficits to raise the non-resident tax to 30%? Or higher? It used to be 15% at one point, but was raised to 25%. Nobody in Canada complains when non-resident taxes get raised. So it's an easy target for tax hungry politicians.

I see no benefit in leaving the money in Canada. Even if you're in the hole, take the capital loss and invest in the same type of funds in the US.

[minnew 4]

I had a company pension plan & when I left I had to choose whether to take the lump-sum or invest it. I saw no point in investing it in canada because like you I knew I was not going to have any income for at least 3 months because of no EAD. They taxed 20% of it right off the bat... Almost as bad as NR tax!!! For some people they can rely on their SO to take care of their expenses while they are unemployed due to the K1 visa, for us that was not an option. We also had a wedding to pay a small part of, out families paid the majority.

It's really unique to your own personal finances as well as the comingling of finances after you are husband & wife. I thought getting a job wouldn't take long once I had the EAD... Boy was I wrong... But Canada EI has kicked in until then.

[CDAgirlMI 51]

Count in the group that says to take the money out.

If your normal tax bracket is less than 25% in Canada, then take it out in Canada before you go. It will be taxed along with your Cdn job income for that year.....If you're in a high tax bracket, take it out after you leave and you'll get the lower taxed 25% rate (instead of say 40% fed+prov bracket you might be in.)

Chances are you'll get to claim the full basic personal exemption for the year in Canada since most of your worldwide income will be Canadian. You only get the pro-rated amount if you start working in the US in the same year and make a good sum of money. Section 217 in Canada for all that info. Taking out your RRSP increases the percentage of your money being Canadian, which helps with the 217.

You'll be paying higher MER fees in Canada than in the USA. This can be considerable. Say you have $20,000 sitting in an RRSP. At 2% in Canada vs 0.8% in the USA, the difference will be $400 in Canada vs $160 in the USA.

You won't be able to change any of the funds that you are currently invested in after you leave. You're locked in those choices. In the US, you can change to any fund at any time.

What if the Cdn government decides in this time of deficits to raise the non-resident tax to 30%? Or higher? It used to be 15% at one point, but was raised to 25%. Nobody in Canada complains when non-resident taxes get raised. So it's an easy target for tax hungry politicians.

I see no benefit in leaving the money in Canada. Even if you're in the hole, take the capital loss and invest in the same type of funds in the US.

I talked to my financial advisor today & he said anything over $15,000 is subject to 30% tax(so it has gone up).

He didn't give me advice on what I should do...he said he would look into my case & let me know this week.

Thanks for the relpies...

[trailmix 77]

Count in the group that says to take the money out.

If your normal tax bracket is less than 25% in Canada, then take it out in Canada before you go. It will be taxed along with your Cdn job income for that year.....If you're in a high tax bracket, take it out after you leave and you'll get the lower taxed 25% rate (instead of say 40% fed+prov bracket you might be in.)

Texanadian makes a very very good point here. While the witholding varies on RRSP withdrawals, based on the amount taken out - that is really irrelevant. That's just the government witholding to make sure they get their money.

The real keys, as Texanadian mentioned are:

- What tax bracket you are going to be in this year and

- Whether or not you will be considered a resident for the entire year for Canadian tax purposes.

Assuming you do want the money - those are your two main considerations. The only guarantee you do have is that you will be taxed as a non-resident if you wait and withdraw them a couple of years from now.

[Texanadian 10]

From $0 to $5,000 10%

From $5,001 to $15,000 20%

Greater than $15,000 30%

The above are the tax rates for withdrawing an RRSP in Canada. That's just what they tax you for at the source. To use extreme examples, if you made no money all year and withdrew $20,000, you'd be taxed 30% at source and then get back about 2/3rds of that tax at the end of the year. If you made a million dollars and withdrew $7,000 then you'd have to owe more tax at the end of the year since you'd be in the 29% federal tax bracket in Canada.

If you're a multimillionare who is retired in the USA, your best bet would be to take the 25% non resident tax.

Most Canadian tax advisors only know about Canadians who live in Canada all the time. They don't usually know how it works for Canadians moving to or already living in the USA.

So the non-resident rate is still 25%, not 30%.

[redBlue 1]

I talked to my financial advisor today & he said anything over $15,000 is subject to 30% tax(so it has gone up).

He didn't give me advice on what I should do...he said he would look into my case & let me know this week.

Thanks for the relpies...

"he said anything over $15,000 is subject to 30% tax(so it has gone up)."---------but this 30% is after you become a non-res. right? what if u withdraw the money while u are still in Canada,u wiouldn't get hit by that then...

[Kimbear 53]

I had undere 5k in my rrsp. one was a personal the other was from my work. since i've been out of work and had low income i took them out in dec. was taxed on both on the withdrawls asap by the companies, and bascially got all the tax back when i just did my return.

since it was low value and it's a bit of a pain to delcare them each year in the usa, and i needed the money, it just made sense for me to cash out on them.

[trailmix 77]

"he said anything over $15,000 is subject to 30% tax(so it has gone up)."---------but this 30% is after you become a non-res. right? what if u withdraw the money while u are still in Canada,u wiouldn't get hit by that then...

Hi redblue,

The witholding amount applies to everyone - whether you are a resident of Canada or not.

The 30% is right off the top - so if you called today and withdrew 15 thousand (even though you are still a resident of Canada) you would only receive $ 10,500.

That is only a witholding tax, it has nothing to do with what you are actually really going to pay in tax.

So let's say you do the above and withdraw the 15 thousand and receive 10,500.00 in your bank account.

- When you do your taxes you would claim that you received 15 thousand from an RRSP withdrawal.

- The 15k is counted as income

- Later in the return you would show that you paid $4500.00 in tax

- Let's say your tax bracket for the year is really only 17%

They would end up refunding you $1950.00 of the tax you paid.

Hope that helps!

Edited February 26, 2010 by trailmix

[CDAgirlMI 51]

Yes, I now live in the US, so I'd be deemed as a non-resident if I were to pull out any RRSPs.

I'm not a millionaire(lol) & my income for 2010 is going to be minimal, considering I'll be working only 1/2 the year, providing I get employment right away after EAD.

Forgive me for my ignorance, I'm trying to learn as much as I can, to do the right thing.....

If I pull out RRSPs this year, I'll have to pay tax to the Canadian government.

Now the IRS...is there a %-age they will take? Does it make a difference if I(or my husband) put it into an IRA & not into our bank account?

So based on a $25,000 RRSP portfolio, how much would I really get (excluding exchange rates)...just taxed. (I understand that I would get some back from the Canadian gov't)