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I am a Canadian living in the U.S. I have two RRSPs, one is a personal plan and the other is a locked-in account from my previous employer’s pension plan. Can I transfer (roll over) my RRSPs into an account in the U.S. without being penalized?
The U.S. equivalent of an RRSP is known as an Individual Retirement Account (IRA). Unfortunately, RRSP assets cannot be rolled over to a U.S. IRA. If you withdraw funds from your RRSP, the entire amount of the withdrawal is subject to Canadian withholding tax. The rate of withholding tax on lump-sum withdrawals varies from 10% for amounts lower than 5,000$ to 30% for amounts exceeding 15,000$. There may also be U.S. tax to pay on these withdrawals; however, foreign tax credits are generally available to eliminate such double taxation.
If you keep your RRSP in place, it continues to be tax-deferred for Canadian tax purposes and you can elect to defer U.S. tax on any income accruing in the plan until it is distributed. When you finally withdraw funds as a periodic pension, including withdrawals under a RRIF or an annuity, both Canadian and U.S. taxes will apply. The Canadian non-resident withholding rate on periodic pensions is 15%. However, you may claim a foreign tax credit on your U.S. tax return to recover the amount of withholding tax paid to Canadian authorities.
As for your locked-in RRSP, provincial pension legislation prevents you from collapsing a locked-in RRSP until you reach a certain age.