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What do you do with your Registered Retirement Savings Plan or RRSP when moving to the US?

By John McCord, Cardinal Point Wealth Management

Canadians who are moving permanently or for an extended period of time while on a work sponsored visa must answer the above question. There are some fundamental decisions that must be made concerning any tax-deferred accounts (registered) that are being left Canada.  Some examples of Canadian registered accounts include RRSPs, LIRAs, RCAs, RRIFs and IPPs.
 
In most cases, your new U.S.-based financial advisor will not be able to offer council regarding your Canadian investment accounts because he/she is not properly registered with the Canadian regulatory bodies. If you wish to continue to retain your Canadian-based advisor, please be aware that it is highly unlikely that he/she will be able to advise you on any of your U.S.-based investment accounts due to regulatory requirements. Therefore, it is always important to engage a financial advisory group that is registered to offer advice on both sides of the border.
 
The most common Canadian registered account is an RRSP. It is often the account Canadians are forced to make decisions on when moving to the United States. There are several options available to RRSP account holders but it is important to remember that there is not a "single solution."  When forming an RRSP transition plan, tax treatment (when discharged), investment options, management fees and appropriate estate planning concepts should all be properly considered. Additionally, it is helpful for a qualified cross-border transition advisor to know whether a move to the U.S. will be temporary or long-term.
 
One of the biggest misconceptions is the notion that RRSPs can be "rolled over" or transferred to an equivalent retirement account in the United States. Unfortunately, there is no option to do so. Instead, some of the more common strategies suggested by cross-border financial planning advisors include:      

1.     Set up a "passive" investment portfolio before exiting Canada. One passive strategy employed is the purchase of a long-term GICs that automatically rolls over when the term of the GIC is complete.

2.     Redeem the assets in the RRSP, pay the 25% withholding tax and potentially claim foreign tax credits on your US taxes.  This solution can make sense if the amounts held in the RRSP account are small and/or the account holder can take advantage of the passive foreign tax credit available under the Canada-U.S. tax treaty.

3.     Engage a firm that can actively manage your Canadian RRSP accounts in conjunction with your new U.S.-based investment accounts. Decisions on investment and or withdrawal strategies can then be made according to your yearly circumstances.  The plan could include gradually redeeming the RRSP over a period of time in a tax efficient manner. Or, it might be optimal to convert an RRSPs to a RIFF to reduce the withholding tax rate.
 
Regardless of the solution chosen, there are annual filings required by the IRS and the Treasury Department that reduce or exclude taxation by the IRS of Canadian registered accounts. Substantial tax and late penalties can be assessed should the required tax filings be omitted.  The IRS is becoming more aggressive in it's effort to ensure that the annual filings are received in a timely manner. In some cases, the late tax filing penalty fines can exceed the value of the RRSP account.

There is no "one size fits all" cross-border financial planning strategy. Therefore, it is important to partner with a qualified team of tax, legal and investment professionals who specialize in Canadian and United States cross-border transitioning. Stay tuned for part four of our series.

Please contact Cardinal Point Wealth Management at http://www.cardinalpointwealth.com/US/contactus.html to review your unique situation.