The Top Five Reasons to Keep Your IRA Instead of Transferring to an RRSP

Are you a Canadian resident with a traditional U.S. Individual Retirement Arrangement (IRA) account? You may be thinking about collapsing your traditional IRA or transferring to an RRSP because you want to consolidate your assets in Canada. However, both of those actions are not necessarily in your best interest.

Here are the top five reasons why you would want to keep your IRA:

  1. The value of your IRA account is not taxable in Canada upon your death.

Unlike the value of an RRSP or RRIF account, the IRA account is not included as income upon your death or your spouse’s death if they inherit your IRA.

  1. Upon your death, your adult children and other non-spouse beneficiaries can inherit your IRA even if they live in Canada.

Inheriting an IRA is a tax-free rollover for both Canadian and U.S. tax purposes.

Your designated beneficiaries will inherit a tax-deferred investment account, unlike Canadian RRSPs and RRIFs, which lose their tax-deferred status upon the death of the last surviving spouse.

  1. After your death, the IRA investments can continue to grow many years following your death.

Your spouse can draw the IRA minimum withdrawals over their lifetime, extending the tax-deferred growth.

Your adult children can draw as much as they want from the IRA over a period of up to 10 years. They have the flexibility to plan strategic withdrawals in low-income years to minimize their income tax. If you died before your required minimums started, they could let the account grow for the maximum period until it is time withdraw the entire amount in the tenth year.

  1. Tax on your IRA is only due when withdrawn, for both Canadian and U.S. tax purposes.

There is no requirement to file a U.S. tax return if you are not a U.S. citizen (non-resident alien) because the 15% U.S. withholding tax is the final liability to the U.S.

Periodic payments from an IRA paid to a Canadian resident receive a low withholding rate of 15%, rather than 30% that is applicable to a lump sum withdrawal (full collapse) which would be applicable on IRA transfers to an RRSP.

  1. Your IRA investments can remain in USD currency.

Avoid costly conversion fees and unfavourable foreign exchange rates if you primarily invest in U.S. securities and want to keep both the holdings and any dividends in USD currency.

There may be specific situations that favour withdrawing the IRA completely or transferring it to an RRSP. Our team of tax professionals can help you understand the tax and financial planning consequences of those decisions.

If you are looking for a Canadian financial advisor to invest your IRA, or if you have questions concerning your IRA please feel free to book a meeting with one of our advisors.