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Question

I’m 60 and have a Vanguard SEP-IRA with $448K USD in the US. Vanguard now *always* withholds 30% on withdrawals (unless an RMD at 71) and won’t allow non-residents to change asset allocation. I think I want to lump sum move the funds to my Questrade-RRSP but I then have to “make up” the 30% withholding. I retired 2 months ago thanks to $TSLA in my Questrade-Margin account.

Is it as simple as getting Vanguard to wire money to my Questrade-RRSP and then topping up with stocks from my margin account? I also don’t understand how to recoup the 30% withheld by Vanguard / IRA. Lastly, can I refile previous tax year(s) to account for the RRSP deposit.

Thanks so much!

XXXXX

Answer

Hi XXXXXX

Thanks for the information on the intake form. From the submission it looks like you’re not a US citizen or green card holder. Please let me know if this is not correct as it will change my answer to your questions below.

Technically the 30% could be considered a correct withholding under the Canada-US treaty on lump sum withdrawals, however administratively it’s likely incorrect. The IRS and CRA will both adhere to a 15% withholding in most cases. The problem you’ll run into is that CRA will only allow a 15% foreign tax credit on your Canadian return when filed. Which means you’ll lose out on the additional 15% withholdings paid to the US each year.

Has CRA requested any review of the Canadian foreign tax credit in previous years? I’m assuming you have reported the IRA distribution on your Canadian return, in Canadian dollars?

You would have the ability to file a 1040NR (US non-resident return) and apply for a 15% refund for the additional amount withheld. How many years have they been withholding 30%?

With respect to you questions on transferring some of the IRA to your RRSP. This can work, however you’ll need to have enough Canadian source income available for it to work properly. For example, you’ll only be able to transfer an amount roughly equal to your Canadian source income for the year. If you already had RRSP room you could simply use that amount to contribute to your RRSP, however you would want to consider if that actually made sense for Canadian purposes.

In most cases it makes sense to move the money up to a Canadian broker that can manage the account for you and withhold the appropriate 15% each year. I’ve copied in our cross-border investment advisors to this email. It looks like you manage your own investments, however they may have some insights that could help.

Hope that helps.

Regards

Phil