The Top 5 Reasons to Keep Your IRA Instead of Transferring to an RRSP

Written by The Private Client Solutions group of Raymond James Ltd.

Are you a Canadian resident with a traditional U.S. Individual Retirement Arrangement (IRA) account? You may be thinking about collapsing your traditional IRA or transferring to an RRSP because you want to consolidate your assets in Canada. However, both of those actions are not necessarily in your best interest.

Here are the top five reasons why you would want to keep your IRA:

  1. The value of your IRA account is not taxable in Canada upon your death.

  • Unlike the value of an RRSP or RRIF account, the IRA account is not included as income upon your death or your spouse’s death if they inherit your IRA.

  1. Upon your death, your adult children and other non-spouse beneficiaries can inherit your IRA even if they live in Canada.

  • Inheriting an IRA is a tax-free rollover for both Canadian and US tax purposes.
  • Your designated beneficiaries will inherit a tax-deferred investment account, unlike Canadian RRSPs and RRIFs, which lose their tax-deferred status upon the death of the last surviving spouse.

  1. After your death, the IRA investments can continue to grow many years following your death.

  • Your spouse can draw the IRA minimum withdrawals over their lifetime, extending the tax-deferred growth.
  • Your adult children can draw as much as they want from the IRA over a period of up to ten years. They have the flexibility to plan strategic withdrawals in low-income years to minimize their income tax. If you died before your required minimums started, they could let the account grow for the maximum period until it is time withdraw the entire amount in the tenth year.

  1. Tax on your IRA is only due when withdrawn, for both Canadian and US tax purposes.

  • There is no requirement to file a US tax return if you are not a US citizen (non-resident alien) because the 15% US withholding tax is the final liability to the US.
  • Periodic payments from an IRA paid to a Canadian resident receive a low withholding rate of 15%, rather than 30% that is applicable to a lump sum withdrawal (full collapse) which would be applicable on IRA transfers to an RRSP.

  1. Your IRA investments can remain in USD currency.

  • Avoid costly conversion fees and unfavorable foreign exchange rates if you primarily invest in US securities and want to keep both the holdings and any dividends in USD currency.

There may be specific situations that favor withdrawing the IRA completely or transferring it to an RRSP. Our team of tax professionals can help you understand the tax and financial planning consequences of those decisions.

Next Steps

If you’re planning on moving to Canada and need assistance with your investments, estate planning, and portfolio management, please call or email us at Snowbirds Wealth Management as we specialize in cross-border financial planning and wealth management. We work closely with experienced cross-border lawyers and accountants to ensure you have a team behind you.

About Snowbirds Wealth Management

Gerry Scott is a portfolio manager and founder of Snowbirds Wealth Management, an advisory firm focussed on the cross-border market. Together with Dean Moro and Carson Hamill, associate financial advisors and assistant branch manager with Snowbirds Wealth Management, they provide investment solutions for Americans living in Canada, and Canadians residing in the United States. Licensed in both Canada and the US, they provide tailored investment solutions to minimize the tax burden when moving assets across borders.

To schedule an introductory call, please click here.

The information contained in this communication was obtained from sources believed to be reliable; however, we cannot represent that it is accurate or complete and it should not be considered personal taxation advice. We are not tax advisors and we ecommend that clients seek independent advice from a professional advisor on tax related matters

Statistics and factual data and other information are from sources RJLU believes to be reliable but their accuracy cannot be guaranteed. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities nor is it meant to replace legal, accounting, taxation or other professional advice. We are not tax advisors and we recommend that clients seek independent advice from a professional advisor on tax-related matters. The information is furnished on the basis and understanding that RJLU is to be under no liability whatsoever in respect thereof.

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