Should I convert my US IRA to my RRSP?

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Question

Thanks for the help earlier.

Before she proceeds with finding an advisor who can manage her us-registered IRA, she wants to confirm the following with you.

Can you confirm that it is not advisable for her to convert a $700K IRA to an RSP, because the cdn foreign tax credits will ultimately fall short (by about 15%) of recovering the us tax withheld, regardless of whether she does it in stages or as a lump sum?

Thank you for taking the time to respond to my voicemail today, Sept 17.

I currently live in the US and have an IRA / Roth at a brokerage firm here. I’m still working but plan on retiring next XXXXX and moving to Canada.

I am a dual citizen of US and Canada.

I listened to your podcast on YouTube re transferring an IRA to an RRSP. I’ve been getting advice from a friend to check out this option.

So, it sounds like a requirement to do this is that I have to have enough Canadian source income to even consider this option.

I don’t have any Canadian source income so I’m double checking that I will unable to transfer my IRA to an RRSP.

Also, I did contact someone at XXXXXX in Canada last year and he said I can move my US IRA to their Canadian branch and would be able to make withdrawals from that IRA account. However, the restriction is that I can ‘maintain’ my account and make distribution withdrawals but cannot receive advice or buy stocks

Okay, so my US brokerage firm where I currently hold my IRA told me they would have the same restrictions as a US account holder living in Canada and wanting distributions to be sent to my Canadian bank account.

Is there any advantage for me to move Brokerage account to a Canadian cross border US/Cdn brokerage firm?

I’ve held my accounts at US brokerage firm for 20 years and am happy with their services

I see that Hutcheson has an office in Victoria , BC where I will be moving. I plan an using their accounting services when tax time rolls around.

I really appreciate any advice on the above and I thank you for you time!

Kind regards

XXXXXXXXX

Sent from my iPhone

Answer

Hi XXXXX and XXXXXXX

Thanks for the email.

In most cases I wouldn’t advise someone to convert their IRA to an RRSP given the reasons I outline in my videos and blog posts:

  • Depending on your income levels it could take a significant amount of years to convert the IRA to and RRSP
  • The accounting costs each year to do so are significant
  • CRA reviews these transactions often, hence more accounting fees
  • The IRA can eventually be gifted to a non-spouse beneficiary without attracting Canadian “death tax”
  • If you’re under 59.5 years old you may end up paying double tax on the transfer given early IRA withdrawal penalties.

You often hear Canadian investment advisors suggesting transferring an IRA to an RRSP, however that’s almost always because they don’t have any other options as they can’t manage US retirement accounts in Canada. That’s why I always refer to firms like Raymond James  and others that have options for managing both Canadian and US investment accounts.

That being said there are a few reasons why you might want to convert:

  • If the account is small it might make sense to consolidate accounts. In this case it’s not though
  • If you wanted to split income with a spouse in the future you might want to convert the IRA to an RRSP that eventually converts to a RRIF that can be split with a spouse. IRA distributions cannot be split.

Hope that helps.

Cheers

Phil

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