Tag Archives: Canada

Retirement Savings Accounts

There are many different tax-advantaged saving accounts in Canada and in the US. Unfortunately they are radically different in each country. In the US there are Keogh, IRA, traditional and Roth, 401k, and many others. In Canada there are RRSPs, TFSAs, and many others. In addition to these there are plans that are sponsored by employers. In most cases tax-advantaged savings accounts in one country are not recognized in the other.

Let me describe some of the problems related to RRSPs. Their full name is Registered Retirement Savings Plans. In 2005 the US came up with form 8891 to report these plans. For some reason that is not clear to me they required that these plans be reported to the IRS in US dollars. The RRSP records are kept in Canadian dollars. The conversion to US introduces a very large error in these reports, since the two currencies move up and down faster than the securities in the average account gain in value. For 2013 most RRSPs will show a large decrease in value when converted into US dollars, regardless of how well they do in Canadian dollars.

For some reason California believes that it has the right to charge state income tax on the RRSPs owned by California residents, including those caused by changes in the exchange rate. They may change their view when they see the large losses expected in 2013 returns.

Each of these retirement savings plans causes problems for people who live in the other country. When distributions are made before the stated maturity date this introduces another level of uncertainty. I can’t give you any general information about these, but can only go into details on particular cases.