Should I Liquidate My RRSP When Moving to the U.S.?

In case of relocation to the U.S. with an RRSP in the financial portfolio, one of the first questions naturally might be whether you should liquidate it. In general, the answer is no.

Thanks to the dual tax treaty US Canada, the Registered Retirement Savings Plan (RRSP) can continue to exist without necessitating immediate withdrawal. The treaty enables tax-deferred growth, provided the taxpayer makes the proper treaty election on their U.S. return and satisfies the required reporting steps.

We present important considerations as below:

• No forced liquidation: The treaty does not mandate RRSP closure when moving to the U.S.
• Tax deferral continues: U.S. tax on RRSP income is generally deferred until you take distributions.
• Proper disclosure is essential: You should report the RRSP annually using FBAR if your foreign accounts exceed $10,000.
• Form 8938 may apply: In accordance with the asset level, this additional FATCA form could be necessary.
• Form 3520-A exemption RRSP: In line with the Revenue Procedure 2014-55, taxpayers usually do not need to file Form 3520 or 3520-A for RRSPs.

It should be acknowledged that liquidating the RRSP can generate Canadian withholding tax and make individuals immediately liable for U.S. tax on the entire distribution. In case you are not in urgent need of those funds, It is usually smarter to leave the account intact and take withdrawals strategically in retirement.

It is true that the RRSP will still fall under cross-border retirement accounts tax rules. Therefore, the correct classification and annual reporting, as well as treaty elections, should be taken into consideration.

If you also hold a TFSA, remember that TFSA IRS reporting requirements differ. TFSAs are not covered by the treaty and may still need to be reported under Form 3520 and Form 3520-A, along with FBAR for RRSP and TFSA.

In a Nutshell

Before taking an action, it would be smart to consult with a cross-border tax advisor who is experienced in RRSP filing requirements US Canada. The timing element and professional reporting practices are everything when it comes to establishing full compliance and minimizing taxation liabilities. Contact Watter CPA today for expert aid.