Can I get a Registered Retirement Savings Plan as a US expat?
Published on April 12, 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 US expats invest in RRSPs while living abroad?
Yes, US expats residing in Canada have the opportunity to invest in Registered Retirement Savings Plans (RRSPs). This allows them to enjoy tax-deferred growth within Canada and may also benefit from the Canada-US tax treaty.
What exactly is an RRSP?
An RRSP is an investment vehicle in Canada designed primarily for saving toward retirement. It offers tax-deferred growth, meaning both Canadians and US expats in Canada can save for their retirement more effectively. Contributions to an RRSP may lower your taxable income, offering immediate tax benefits, while the earnings in the account grow without incurring taxes until they are withdrawn.
How does an RRSP benefit me?
Investing in an RRSP can lower your taxable income today, potentially putting you in a lower tax bracket and offering an immediate tax advantage. Plus, the tax-deferred growth on your investments within the RRSP means you can build up your retirement savings efficiently. When you retire and start withdrawing these funds, they are taxed as income at your current rate, which is usually lower than during your working years.
For detailed guidance, especially for US expats, consulting with tax professionals on Expat Tax Online could provide more specific insights and advice suited to your circumstances.
Is it possible for a US citizen to invest in an RRSP from abroad?
Absolutely, US citizens can continue to contribute to or open new RRSP accounts while living outside Canada, as long as they earn income that is taxable in Canada.
However, it’s crucial to understand the tax implications in both countries. Seeking advice from tax experts who specialize in cross-border taxation is advisable, as tax treaties between Canada and the US will significantly influence how your investments and income are taxed.
I want to know more about US taxes abroad
What investment choices do I have within an RRSP?
RRSPs allow for a variety of investment options, including:
- Mutual Funds
- Stocks
- Bonds
- Exchange Traded Funds (ETFs)
- Guaranteed Investment Certificates (GICs)
When can I start contributing to an RRSP?
You’re eligible to contribute to an RRSP as soon as you have an income and file a tax return in Canada, continuing until the end of the year in which you turn 71.
What are the key advantages of putting money into an RRSP?
Investing in an RRSP presents multiple benefits:
- Tax-deferred growth lets your investments grow tax-free until you withdraw them.
- Tax deductions since contributions reduce your taxable income.
- Helps in building a retirement fund.
- Income splitting could provide tax advantages by sharing retirement income with your spouse.
- For estate planning, RRSPs can be transferred to a spouse tax-free upon death.
Engaging with a financial advisor who has expertise in RRSP investments is highly recommended. They can offer insights and personalized advice, ensuring you make the most of your investment.
When is it possible to take money out of an RRSP?
You can start taking money out of your RRSP at any time, provided your plan isn’t locked. However, you must withdraw all funds by the end of the year you turn 71, with taxes applied to each withdrawal.
How do you get started with an RRSP?
To begin with an RRSP, you’ll need to pick a provider, understand the available investment choices, and make regular contributions. Getting advice from a financial advisor is a great move to ensure you’re setting up your RRSP correctly and making the most of your retirement savings.
Can you move your RRSP to someone else?
RRSPs cannot be transferred to another person directly, except to a spouse under certain circumstances like a divorce or legal separation.
Form T2220 is required for transferring funds from an RRSP, RRIF, PRPP, or SPP to another similar plan due to the end of a marriage or common-law partnership.
Typically, the RRSP stays in the original holder’s name until it’s turned into a retirement income or withdrawn.
How can I receive income from my RRSP?
To start receiving income from your RRSP, you can convert it into a Registered Retirement Income Fund (RRIF) or buy an annuity. This change should happen by the end of the year when you turn 71. Your choice between a RRIF or an annuity will dictate the way you receive income and its taxation.
What happens with an RRSP after the holder passes away?
If the RRSP holder passes away, the account’s value is treated as income on their final tax return unless the RRSP is passed directly to a surviving spouse or common-law partner. This transfer allows the spouse or partner to avoid immediate taxes under specific conditions.
This transfer needs to be finalized by December 31 of the year following the holder’s death, with certain rules applying to the surviving spouse or partner. For a full understanding of these conditions and related tax implications, it’s wise to consult with a financial advisor.
