La Quinta, CA
(760) 895-3516

Monday, April 20, 2015

Withdrawing RRSP's as a U.S. Resident

Should a Canadian expat living in the United States withdraw RRSP's as a U.S. resident?
According to the U.S. Canada income tax convention, a beneficiary of an RRSP:
  • May elect to defer taxes on interest accrued until distribution is made
    • This only applies to interest on contributions made while a Canadian resident
    • Tax deferral must be elected each year using form 8891 (Now obsolete as of nov 2014)
  • May keep their RRSP's in Canada and withdraw the RRSP's only upon retirement or when Canadian tax law permits

Withdrawing RRSP's as a U.S. Resident 

 Supposing you want to withdraw RRSP's at retirement age or when Canadian tax law permits.
  • Withdrawing RRSP's as a U.S. Resident triggers taxation in both countries
  • Canadian taxes accrued can apply towards the IRS form 1116 Foreign Income Tax Credit
  • As a non-resident of Canada, you are subject to withholding tax on (RRSP distributions)
    • You may make a section 217 election by filing CRA form NR5 (due October 1st)
    • You then file a Canadian tax return (due June 30th **late files are not accepted)
    • The distribution is reported as Foreign Employer Compensation and Pensions on your 1040 return

Use caution when withdrawing RRSP's as a non-resident, you should do this at retirement age when other sources of income are low. As always, it is best to seek the advice of a professional in this situation.

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(760) 895 3516