Can US expats have a Registered Retirement Savings Plan?
Published on April 04, 2024
by Deborshi Choudhury, EA
Deborshi Choudhury, an IRS Enrolled Agent with 16 years of expat tax experience, specializes in U.S. tax preparation, tax planning, and tax advice for U.S. citizens and Green Card holders living and working in the UAE and Canada.
Table of Contents
Can I get a Registered Retirement Savings Plan (RRSP) as a US expat?
Yes, US expats living in Canada can invest in RRSPs. They can make use of the tax-deferred growth within Canada and potentially benefit from the Canada-US tax treaty.
What is an RRSP?
A Registered Retirement Savings Plan (RRSP) is a Canadian investment account designed specifically for retirement savings. It’s favored for its tax-deferred growth, allowing Canadians and US expats residing in Canada to save for retirement more efficiently.
Contributions to an RRSP can reduce your taxable income, providing immediate tax relief, while earnings within the account accumulate tax-free until withdrawn.
Note: Tax-deferred growth refers to the process of investing your money in accounts where taxes on the earnings are postponed until the funds are withdrawn.
How do RRSPs work?
Contributions to an RRSP reduce your current taxable income and potentially place you in a lower tax bracket. This immediate tax break, coupled with the tax-deferred growth on investments within the RRSP, creates a strong tool for retirement savings.
Upon retirement, when you start withdrawing funds, these withdrawals are taxed as income at your then-current rate, which is typically lower than during your working years.
For comprehensive details, especially concerning US expats, getting advice from tax professionals on Expat Tax Online could offer deeper insights and professional advice tailored to your unique situation.
Can a US citizen still invent in an RRSP even if they’re not living in Canada?
Yes, US citizens can maintain or open new RRSP accounts while living abroad, provided they have earned income that is subject to Canadian tax.
It’s essential, however, to consider the tax implications in both Canada and the US. We recommend getting professional advice from tax experts knowledgeable in cross-border taxation, as tax treaties will play a significant role in how this income and investment is treated for taxation purposes.
What options do I have for RRSP investments?
RRSPs offer a diverse range of investment options including:
- Mutual Funds
- Stocks
- Bonds
- Exchange Traded Funds (ETFs)
- Guaranteed Investment Certificates (GICs)
What if I’m way behind on my U.S. tax returns?
There is a special IRS program to help you catch up on your U.S. taxes safely, without fines and penalties
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It’s for American citizens that didn’t know they had to file U.S. tax returns each year, and have therefore fallen behind. Some more than 30 years! With the IRS Streamlined Procedure, say goodbye to overdue tax returns, late fees, and penalties. If you have children, we can backdate your Child Tax Credit Refund for 3 years.
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At what age can I start contributing to an RRSP?
You can start contributing to an RRSP as soon as you have income and file a tax return in Canada, up to the end of the year you turn 71.
What are the benefits of investing in an RRSP?
Investing in an RRSP comes with several benefits, such as:
- Tax-deferred growth: Investments grow tax-free until withdrawal.
- Tax deduction: Contributions can be deducted from your taxable income.
- Retirement savings: Helps build your retirement nest egg.
- Income splitting: Possible tax benefits by splitting retirement income with your spouse.
- Estate planning: Can be passed to a spouse tax-free upon death.
However, consulting with a financial advisor experienced in this field is recommended. They can provide you with better insight and advice tailored to your situation, as well as provide strategies that can help you optimize your investments.
When can I withdraw my money?
Technically, withdrawals from RRSPs can generally start at any time, so long as they’re not in a locked-in plan, but full withdrawal must occur by the end of the year you turn 71, with taxation applied at each withdrawal.
How do I set up an RRSP?
Setting up an RRSP involves selecting a plan provider, understanding the investment options available, and regularly contributing to the plan. It’s highly recommended to consult with a financial advisor to navigate this process effectively.
Can I transfer my RRSP to someone else?
No. Direct transfers of RRSPs to another person are typically not allowed except between spouses under specific conditions such as marriage breakdown or as part of a legal separation agreement.
Form T2220 is used for the transfer from an RRSP, RRIF, PRPP, or SPP to another RRSP, RRIF, PRPP, or SPP on the breakdown of the marriage or common-law partnership
In most cases, the RRSP remains in the name of the original holder until it’s converted into a retirement income option or withdrawn.
Is it possible to receive income from an RRSP?
Yes, you can convert your RRSP to a Registered Retirement Income Fund (RRIF) or purchase an annuity to start receiving income. The transition to receiving income must occur by the end of the year in which you turn 71. The method chosen will affect how and when you receive income, as well as how the income is taxed.
What happens when an RRSP annuitant dies?
Upon the death of an RRSP annuitant, the value of the RRSP is considered income on their final tax return unless the sole beneficiary is a spouse or common-law partner, who can then transfer the RRSP into their name under specific conditions, avoiding immediate taxation.
This process must be completed by December 31 of the year following the annuitant’s death, with specific reporting requirements for the surviving spouse or partner. For a comprehensive understanding of these conditions and the tax implications, consulting with a financial advisor is advisable.
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