Question

Hi Phil

I found your website via youtube after watching some of your videos on IRAs. Great job on the videos, looking forward to seeing more. I don’t think question was addressed so I thought I would send you a quick email to see if I could get your thoughts.

My question is as follows…

My wife has a sizable US IRA and no RRSPs. Both are incomes in retirement will be quite low. Is there any way to income split the IRA between the 2 of us?

She files a US tax return but I don’t.

Thanks in advance for any help on this.

Regards

XXXXXXX

Answer

Hi XXXXX

Thanks for the kinds words about the YouTube channel. I hope to have more cross-border investment videos up soon.

Under the current Canadian pension income splitting rules IRA distributions are specifically excluded from the type of pension income that can be split between spouses.

Because the US IRA will only be taxable to your wife and not eligible for splitting you’ll need to review other income splitting options.

Do you or her have other RRSPs or pension income? If not there may only be one option available.

Assuming splitting the IRA money is the only available tax saving strategy you could attempt to convert the IRA to an RRSP and then eventually split the income once the RRSP converts to a RRIF.

We would need to work though the details of your specific situation, but in general it might look like this:

• You can convert some of your IRA to a Canadian RRSP (not as easy as it seems).
• The technicals on how to perform this conversion is beyond the scope of this email, however you can read about it in more detail here.
• However, given the IRA is “significant in size” and your her income may be lower in retirement you may only be able to transfer a smaller amount each year. Generally speaking, you should be able to transfer up to the amount of your Canadian source income each year
• Once transferred to the RRSP she would be able to split the RRSP income with you or, if she’s under 65 years old she would need to wait until it’s converted to a RRIF to split the income.

Once again, this is only a general overview of what may be possible. You’ll want to sit down to review this with a professional that has experience in the space. If you want to book a consultation please let me know.

Cheers

Phil