Dual citizen with RRSP wants to move back to USA -

QUESTION: I'm a citizen of the US and Canada.  I was born in the US to an American and Canadian parent and have been in Canada as PR for around five years since my mid 20s.  I have been contributing to RRSPs as a tax shelter for a portion of those years.  Currently, I have around $50k CDN in RSPs.  There is a strong potential as I may end up returning to the US to work and live in the upcoming years. 

Is leaving the money I invested in RRSPs the only real way not to take too big of a hit for withdrawal of the money.  Ideally, if I could wave a magic wand, I would slide the money into a 401K and not have a hit at all.  I know that isn't a real posibility.  Is there a way to minimize the impact.  I'm trying to find a way not to feel like the beginnings of the retirement savings I've started may not have been a wasteful one.


david ingram replies:

I hope and trust that you have been filing your US returns every year while living in Canada.   You have a bigger responsibility to file te US returns than you do a Canadian return.

As an example -

If you were earning $100,000 Canadian per year as an employee, your employer would or should have deducted about $28,500 and depending upon the province you live in, your Canadian tax (no RRSP, no union and no other dedcutions)  would be about $28,000 and you would get back $500 or so as a refund.

The fact is that there is no legal requirement for you to file a Canadian Tax Return becasue you do not owe tax.  Canda can request and / or demand a return from you  but unless they do, you do NOT HAVE TO FILE in Canada.

HOWEVER, you are a US citizen and must file a US return no matter where you live and no matter what currency you are paid in.  The $100,000 Canadian is about $88,000 US in 2006 and the tax (single - no mortgage interest, etc) owing to the US at this point is $16,613. US or $18,840  Cdn.  And, you do owe the tax UNLESS you file a return and claim a foreign tax credit on form 1116 or an up to $82,400  earned income exemption on form 2555.

In addition, you must file  Form TDF 90.22.1 to report the RRSPS and any other financial accouints in Canada (or France or Germany) or face a possible fine of up to $500,000 plus 5 years in jail and form(s)  8891 to report the internal earnings of the $50,000 of RRSPs or face fines of 35% of the $50,000 in the RRSP PLUS 5% per year for every year you fail to report it (them).

Goto www.centa.com and read the Oct 1995 Newsletter (top left hand box) for details of what you have to report to the US as a US citizen living in Canada and then go to www.centa.com and read the US/Canada Taxation section in the second box down on the right hand side. This particular section is downloaded some 300 trimes a day from our web site.

If you had moved back to the US six years ago, you would have (on average) 70 percent MORE money in your Canadian RRSP than you would have if you had managed to move it to an IRA or 401(K).  This is because the Canadian dollar has gained some 35% in value relative to the US diollar and the Canadian stock market also outperformed the US market for most of that time as well.

There is no guarantee that the same thing will happen in the future but if you "do" return to or move to the US, I suggest you leave the RRSP in Canada and start new savings in the US.

If you "do" decide you want the money in the US, you  can withdraw the RRSP from Canada and pay 25% tax to Canada as a non-resident.  Becasue you only have $50,000 in teh RRSP, you copul dlikely roll it into some sort of tax sheltered plan in the US by taking out $10,000 a year, paying the tax to Canada and then depositing the same amount o your US plan (because you have it available).   It would take six or seven years but if you could set up some sort of private pension plan or even participate in a larger way in a company 401(K) because the money is available.

If you have not being filing your US returns (bet you have not) and you want help with them, that is what we do by fax, email (pdf files only), snailmail or courier.

I personally have 44 years experience in US Canada tax and  have three associates with significant experience as well.

David Ingram's US / Canada Services
US / Canada / Mexico tax, Immigration and working Visa Specialists
US / Canada Real Estate Specialists
My Home office is at:
4466 Prospect Road
North Vancouver,  BC, CANADA, V7N 3L7
Cell (604) 657-8451 -
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Calls welcomed from 10 AM to 9 PM 7 days a week  Vancouver (LA) time -  (please do not fax or phone outside of those hours as this is a home office)
Disclaimer:  This question has been answered without detailed information or consultation and is to be regarded only as general comment.   Nothing in this message is or should be construed as advice in any particular circumstances. No contract exists between the reader and the author and any and all non-contractual duties are expressly denied. All readers should obtain formal advice from a competent and appropriately qualified legal practitioner or tax specialist for expert help, assistance, preparation, or consultation  in connection with personal or business affairs such as at www.centa.com. If you forward this message, this disclaimer must be included."
Be ALERT,  the world needs more "lerts"
David Ingram gives expert income tax & immigration help to non-resident Americans & Canadians from New York to California to Mexico  family, estate, income trust trusts Cross border, dual citizen - out of country investments are all handled with competence & authority.
Phone consultations are $400 for 15 minutes to 50 minutes (professional hour). Please note that GST is added if product remains in Canada or a phone consultation is in Canada.
This is not intended to be definitive but in general I am quoting $800 to $2,800 for a dual country tax return.
$800 would be one T4 slip one W2 slip one or two interest slips and you lived in one country only - no self employment or rentals or capital gains - you did not move into or out of the country in this year.
$1,000 would be the same with one rental
$1,200 would be the same with one business no rental
$1,200 would be the minimum with a move in or out of the country. These are complicated because of the back and forth foreign tax credits. - The IRS says a foreign tax credit takes 1 hour and 53 minutes.
$1,500 would be the minimum with a rental or two in the country you do not live in or a rental and a business and foreign tax credits  no move in or out

$1,600 would be for two people with income from two countries

$2,800 would be all of the above and you moved in and out of the country.
This is just a guideline for US / Canadian returns
We will still prepare Canadian only (lives in Canada, no US connection period) with two or three slips and no capital gains, etc. for $150.00 up.
With a Rental for $350
A Business for $350 - Rental and business likely $450
And an American only (lives in the US with no Canadian income or filing period) with about the same things in the same range with a little bit more if there is a state return.
Moving in or out of the country or part year earnings in the US will ALWAYS be $800 and up.
TDF 90-22.1 forms are $50 for the first and $25.00 each after that when part of a tax return.
8891 forms are generally $50.00 to $100.00 each.
18 RRSPs would be $900.00 - (maybe amalgamate a couple)
Capital gains *sales)  are likely $50.00 for the first and $20.00 each after that.
Just a guideline not etched in stone. 
This from "ask an income trusts tax and immigration expert" from www.centa.com or www.jurock.com or www.featureweb.com. David Ingram deals on a daily basis with expatriate tax returns with multi jurisdictional cross and trans border expatriate problems  for the United States, Canada, Mexico, Great Britain, United Kingdom, Kuwait, Dubai, Saudi Arabia, Thailand, Indonesia, Japan, China, New Zealand, France, Germany, Spain, Italy, Russia, Georgia, Brazil, Peru, Ecuador, Bolivia, Scotland, Ireland, Hawaii, Florida, Montana, Morocco, Israel, Iraq, Iran, India, Pakistan, Afghanistan, Mali, Bangkok, Greenland, Iceland, Cuba, Bahamas, Bermuda, Barbados, St Vincent, Grenada,, Virgin Islands, US, UK, GB, and any of the 43 states with state tax returns, etc. Rockwall, Dallas, San Antonio Houston, Denmark, Finland, Sweden Norway Bulgaria Croatia Income Tax and Immigration Tips, Income Tax  Immigration Wizard Antarctica Rwanda Guru  Consultant Specialist Section 216(4) 216(1) NR6 NR-6 NR 6 Non-Resident Real Estate tax specialist expert preparer expatriate anti money laundering money seasoning FINTRAC E677 E667 105 106 TDF-90 Reporting $10,000 cross border transactions Grand Cayman Aruba Zimbabwe South Africa Namibia help USA US Income Tax Convention

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