QUESTION:
My wife and I are Canadians with green cards living in USA. My wife was a
teaher in Canada and is wondering what to do with her pension. Put it into
an RRSP or withdraw it and move the money to US. (We understand there is a
25% Canadian withholding tax for this?) Would we also pay tax on this in the
US?
====================================
david ingram replies:
Your wife should roll the Pension into an RRSP and then leave the RRSP in
Canada.
Just about every RRSP / IRA / Pension has done better in Canada for the last
five years and combined with the dollar exchange it is not unusual to have
double what you would have had in the US.
That will change and in the future the US will do better but having money in
Canada as an emergency is not a bad idea.
The disadvantage is that you have to file US forms 8891 and T DF.90 every
year with extreme penalties (up to 5 years in jail plus $600,000 for failure
to file the T DF.90 for instance).
And, if you have a very good use for the money (not just to re-invest in
stock in the US), cashing it in and paying Canada 25% might be a good idea.
The US government would require you to report any increase in value since
your entered the United states and pay tax on that. You would then pro-rate
the 25% tax paid to Canada and claim it as a foreign tax credit on the form
1116.
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