QUESTION:
We are dual citizens, living in Canada. We are moving to Washington state
and I will be working in US and my husband in Canada. I have read that we
should take all our RRSP's out of Canada and convert to IRA"S in US and pay
the penalty. THis was advised for tax purposes. We are planning on retiring
in the US. Is this a good idea?
===============================================================
david ingram replies:
I certainly do not recommend it, particularly if your husband is still
working in Canada. He will want to keep on buying an RRSP to lower his
Canadian tax. You should likely invest in an hour consultation with me. The
fee is $375.00 per hour and can be done in person or by phone.
In the meantime, you should have been filing your US 1040 returns all the
time you were in Canada. In addition, you needed to report all your
Canadian Accounts (on the assumption that the total of all accounts plus
RRSP's is over $10,000 US) on form T DF 90-22.1.
Failure to report your foreign (Canadian Accounts) on form T DF.90-22.1
(http://www.irs.gov/pub/irs-pdf/f9022-1.pdf) can carry a penalty of up to
$500,000 PLUS 5 years in jail. Print it out - read the fine print on the
bottom. My record in unfairness was a 105 year old woman who was fined
$10,000.
In addition you should have filled out for 8891 to report the RRSP's
specifically ( http://www.irs.gov/pub/irs-pdf/f8891.pdf)
This is a new form. You used to have to report under the auspices of
REV-PROC. 89-45 and then
Failure to report the RRSP's can earn a US penalty of:
1. 35% of the money contributed to the RRSP
2. 5% per year of the principle for every year unreported
3. 35% when withdrawn
PLUS
4. CANADIAN and US tax upon the withdrawal
-----------------
There is NO method I know of to roll an RRSP into an IRA. However, I always
stand to be corrected here though so if Andrew, Gary, or anyone else have a
method, be free to comment.
=======================
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