Mutual Funds – U.S. citizens generally should be cautious when owning mutual funds in a foreign country (like Canada). They are typically classified as U.S. Passive Foreign Investment Companies (PFIC). Usually, the onerous reporting and taxation can be excessive. Fortunately, Dimensional Fund Advisors is one of a handful of fund companies to offer the Annual Information Statement to enable U.S. citizens to own the fund without punitive tax implications. They can be a core component for a U.S. citizen’s portfolio.
RRSP vs. Traditional IRA – Individuals who have moved from the U.S. to Canada often attempt to “transfer” their Traditional IRAs to an RRSP in Canada. Before this is done, a cross border accountant should examine the potential transaction. Additionally, there are important differences between a Canadian RRSP and a Traditional IRA that need to be considered from a financial planning standpoint.
a. RRSPs, at age 71, are required to be converted to a RRIF, which must be withdrawn at a much faster rate than an IRA. In the first year, 7.5% of the RRIF must be withdrawn. For an IRA, only 3.6% must be withdrawn. The RRIF will be depleted much more quickly.
b. A beneficiary who is not a spouse will cause full taxation of an RRSP, whereas an inherited IRA can be withdrawn over the recipient’s lifetime. As an example, the last surviving parent leaves an RRSP to her son. It will be fully taxable. If it were an IRA, the distributions can be spread over the recipient’s lifetime.
To learn more about protecting your wealth when crossing international borders we encourage you to contact CanAm’s Investment Adviser Affiliate, Charles W. Cullen III, CFP® – click this link now – http://dir.rbcinvestments.com/charles.cullen.
