Question

Hi Phil

I had this question from XXXXX at RBC, but she said I should touch base with you to review what our options might be.

I have a IRA in the US (around $700,000) and a smaller RRSP up here in Canada with RBC. I would like to consolidate investments as much as possible to simplify our financials in the coming year. I have other tax specific questions, but I’m mainly concerned about the IRA right now.

What are the advantages of transferring the IRA to my RRSP. This was originally suggested by XXXXX at RBC but as I mentioned above they thought it would be wise to check with you first.

Thanks.

XXXXXXX

Answer

Hi XXXXXX

We get this question all the time and the answer really depends on a few factors and your individual situation. I’ll give you some general ideas below, but we should schedule an actual consult to review this in more detail. I’m also open to including XXXXX in the conversation if that helps.

First, considering your currently income levels you won’t be able to transfer the full amount of the IRA into your RRSP in one year. As a general rule you’ll only be able to transfer approximately an amount of IRA money to your RRSP equal to your annual Canadian source income.

So, in your case, we might only be able to transfer $70,000 a year and that would take a whole 10 years to do the transfer. Quite a tedious exercise to get the full amount of the IRA in the RRSP.

There isn’t a lot of advantages to transferring the IRA other than:

• It’s always nice to consolidate accounts if you can
• If the IRA is transferred to the RRSP a and eventually converts to a RRIF it will be eligible for the spousal pension split. Unlike regular IRA withdrawals

As you can see, there isn’t a huge amount of advantages to transferring your IRA to your RRSP apart from the smaller items above.

As outlined in many of my cross-border tax podcast episodes some of the reasons you would want to leave the IRA intact and move it to Canada with an advisor that can manage both Canadian and US investments:

• Depending on your income levels it could take a significant amount of years to convert the IRA to and RRSP
• The accounting costs each year to do so are significant
• CRA reviews these transactions often, hence more accounting fees
• The IRA can eventually be gifted to a non-spouse beneficiary without attracting Canadian “death tax”
• If you’re under 59.5 years old you may end up paying double tax on the transfer given early IRA withdrawal penalties.

You often hear Canadian investment advisors suggesting transferring an IRA to an RRSP, however that’s almost always because they don’t have any other options as they can’t manage US retirement accounts in Canada. That’s why I always refer to firms like Raymond James and others that have options for managing both Canadian and US investment accounts.

I hope that helps a little. Please let me know if you need me to clarify any of the above.

Cheers

Phil