Cashing in CPP

[dearheart 0]

I thought I had read somewhere someone cashed in their CPP when moving down to the States. What are people's thoughts on this? My husband and I have no real plan to move back to Canada. I've read this on H&R Block's website,

"Q: How will my CPP and OAS be taxed if I move to the U.S.?

A: Under the Canada-U.S. tax treaty, CPP and OAS benefits paid to a resident of the U.S. are not taxable in Canada. However, you will have to include them on your U.S. return. For U.S. tax purposes, they will be treated in the same manner as U.S. Social Security benefits."

Anyone with experience in this?

Thanks,

Mindy

[Kathryn41 3,205]

Actually, you can't cash in CPP benefits. It is a mandatory federal benefit that is invested collectively for all working Canadians who then draw on it at retirement age. You will get what is due to you when you are old enough to retire - whatever that age is when the time comes. You can't get anything before that unless you qualify for disability or certain survivor benefits.

I think you may be confusing CPP with RRSP - registered retirement savings plan. These are plans that you take out through a bank and to which you contribute tax deferred amounts. When you withdraw the money as a retirement fund it is taxed at that time. You do, however, have the option to cash them in and they become taxable right away. If you have RRSPs and keep them, then the interest that is earned on the principle is considered taxable in the US - they do not treat them as tax deferred monies. You can cash them in before you leave Canada, the amount would then be added as income to your current year taxes and you would be taxed accordingly. You can also cash them in after you leave Canada but you then pay a mandatory 25% withholding tax on them. Only you can determine which of the three approaches is in your financial best interest.

Many private employer sponsored pensions also have a locked-in amount that is basically there until you are of the appropriate retirement age and can then draw on it. It is not possible to cash the locked-in amount and there is no vehicle for the money to be transferred to a non-Canadian retirement instrument at this stage, although you may be able to transfer it to one in Canada.

Hope this helps. I cashed in my RRSPs before I left Canada, paid the tax, and then used the money to pay off debts then re-invest in retirement funds here in the US.

My CPP and 2 locked in employer based pension plans remain in Canada and I will apply to receive them at the appropriate age.

Edited September 19, 2007 by Kathryn41