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I am a Canadian living in the U.S. I have two RRSPs, one is a personal plan and the other is a locked-in account from my previous employer’s pension plan. Can I transfer (roll over) my RRSPs into an account in the U.S. without being penalized?

Expert Answer:

The U.S. equivalent of an RRSP is known as an Individual Retirement Account (IRA). Unfortunately, RRSP assets cannot be rolled over to a U.S. IRA. If you withdraw funds from your RRSP, the entire amount of the withdrawal is subject to Canadian withholding tax. The rate of withholding tax on lump-sum withdrawals varies from 10% for amounts lower than 5,000$ to 30% for amounts exceeding 15,000$. There may also be U.S. tax to pay on these withdrawals; however, foreign tax credits are generally available to eliminate such double taxation.

If you keep your RRSP in place, it continues to be tax-deferred for Canadian tax purposes and you can elect to defer U.S. tax on any income accruing in the plan until it is distributed. When you finally withdraw funds as a periodic pension, including withdrawals under a RRIF or an annuity, both Canadian and U.S. taxes will apply. The Canadian non-resident withholding rate on periodic pensions is 15%. However, you may claim a foreign tax credit on your U.S. tax return to recover the amount of withholding tax paid to Canadian authorities.

As for your locked-in RRSP, provincial pension legislation prevents you from collapsing a locked-in RRSP until you reach a certain age.