These days many Canadians are accepting career opportunities that take them to the United States for a number of years during which they accumulate assets in a U.S. retirement savings plan. Upon returning to Canada, it is possible to transfer the US retirement plan assets into a Canadian RRSP, in most cases on a tax-deferred basis.
The following plans are eligible for transfer to a Canadian RRSP:
403(b) (if transferred to an IRA first)
Keogh Retirement Plan
Individual Retirement Account (IRA)
To ensure that the transfer does not affect your RRSP contribution room, three conditions must be met. These conditions are set out in subparagraph 60(j)(i) or 60(j)(ii) of the Income Tax Act.
• The payments made to the U.S. plan must have been in respect of employment services you, your spouse or common-law partner, or former spouse or common-law partner; rendered while not resident in Canada
• You are a Canadian resident taxpayer and a non-U.S. citizen at the time you collapse your U.S. plan and contribute the proceeds to your Canadian RRSP.
• The transfer must be done as a lump sum and not as periodic payments.
If all three conditions are met, the transfer process has three steps.
Step One – Contact the U.S. plan provider to request the documentation needed to collapse the plan. Complete the paperwork requesting a lump sum withdrawal.
Step Two – A cheque in U.S. dollars will usually be mailed directly to you. Convert the funds to Canadian dollars prior to making the contribution to your Canadian RRSP. The contribution must be made to your RRSP within the calandar year in which you collapse your U.S. plan, or no later than 60 days after year end.
Step Three – Complete the additional tax filing forms necessary. These are noted below.
Withholding tax considerations:
U.S, withholding tax may apply to the transfer. If it does, under the Canada-U.S. tax treaty, the withholding tax should be 15%. The foreign tax credit will generally be available in Canada to reduce possible double taxation.
If you are under age 59 1/2 when effecting a transfer, check with the plan sponsor in the U.S. to see if a 10% early withdrawal penalty will apply. If you are assessed the 10% penalty you can claim the amount paid as a foreign tax credit on your Canadian income tax return.
Your tax return
In addition to the T1 General tax return, these forms will also be required:
Federal Tax – Schedule 1
Schedule 7 – RRSP unused Contributions, Transfers, and HBP or LLP Activities
Form T2209 – Federal Foreign Tax Credits – completed if foreign withholding tax is applicable. A similar provincial form is generally required.
Please speak with your tax advisor for the tax considerations specific to your circumstances.