Converting Your RRSP While In The U.S.?

by Tax Guy - Burlington Accountant on January 28, 2009 Print This Post Print This Post

Question: Me and my wife moved to US in Jan 1980. We are both 65 now and have RRSPs in Canada. We did not contribute anything after we left.  The brokerage statement shows the value of each account at ~$40,500.  The cost basis was ~$75,959. What is the best way to “withdraw” this amount and what will be tax consequences in Canada.

Your best bet is to convert the account to a RRIF and take large payments. These would be subject to a 15% withholding tax. You can claim this as a credit on your 1040.

Follow-Up Question: One final question, if we were to allow the RRSP to “mature” and withdraw the securities (not cash) and hold them, till their prices recover (most of them are Canadian banks and do trade on the NYSE), will we be paying the 25% withholding taxes (to reflect them on our 1040 here in US). The reason to mention this is that the cost basis of the account is higher (~$75,959) than the market value.

Yes you would still have to pay the withholding tax if you took your payments in kind or cash.

About The Tax Guy...

Dean Paley CGA CFP is a Burlington accountant and financial planner who services individuals and business owners locally, nationally and internationally. Dean has appeared in the National Post, Toronto Star and Metro News.

To find out more, visit Dean's website Dean Paley CGA CFP or connect via Twitter @DeanPaleyCGACFP.

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Dale Walters February 13, 2009 at 7:17 pm

Regarding the person’s recommendation that you convert to a RRIF and take large withdrawals.

You can withdraw the greater of 10% of the account value or twice the required minimum withdrawal and receive the 15% withholding rate. Any amounts, per year, over those amounts are subject to 25% withholding. If you are 70 years old, the required minimum withdrawal is 5%, so twice that amount would be 10%. If you are over 70, twice the required amount would be the larger number.

In other words, you can’t just take out any amount and be subject to the 15% withholding.

Tax Admin February 13, 2009 at 11:20 pm

Very good point.

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