QUESTION:
Hi,
I have one question after reading some RRSP related questions on your
website.
I am a Canadian citizen and married to a US citizen. I have about $24,000 in
my three RRSP accounts and I am moving down to California to join my husband
at the end of November.
I am not sure whether I should withdraw all my RRSP now before I leave or
keep it and take it out later as a non-resident.
My calculations show that I would only have to pay about 10% on all my
income this year(including the RRSP taken out)as a resident, whereas I would
have to pay 25% on RRSP if it is taken out next year as a non-resident.
Or it doesn't make any difference when I take out the RRSP as I will be able
to claim foreign tax credit on my US tax return (filed jointly with my
husband).
Considering the benefit of the foreign tax credit, when do you think I
should take out my RRSP?
I will appreciate having your opinion on this.
----------------------------------------------------------
david ingram replies:
It sounds like you have no other earned income in Canada for 2005. Either
that, or a big loss or you put money into the RRSP as well this year.
No matter. If you can get it out at 10% because that will be all the tax
you pay on everything, do it. However, remember that the WITHHOLDING TAX at
the financial institution is NOT the actual tax. When you file your final
departing Canada "Canadian" return, the amount of your RRSP withdrawal is
added to the rest of your income for the year.
If you were a resident of BC and lived here all year and took $24,000 out,
your tax would be $3,494.00 which is closer to 15%.
If you had another $15,000 of earnings the tax would be higher and about 25%
on the RRSP.
And, if you prorate your exemptions as you should do when leaving Canada and
you left on November 30, 2005, the tax would also be slightly higher.
In general, it is usually less tax when you take the RRSP out after you
leave Canada.
When you file a joint return with your husband, you must be sure to fill in
Forms 8891 and T DF.90-22.1
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