Author Topic: Canadian/US dual citizen questions  (Read 907 times)

cincystache

  • Bristles
  • ***
  • Posts: 284
Canadian/US dual citizen questions
« on: March 26, 2019, 08:47:09 AM »
I figured this community might have some smart canadians able to answer a couple questions.

Background:
A friend of mine is a dual US canadian citizen and recently divorced from their spouse. He lived and worked in canada for the last 30 years but he has recently moved back to the US. There is still a spousal RRSP under his name in Canada worth about $220,000 CAD. The rest of his funds are in US bank accounts/brokerage accounts. I've given him some books on index investing and he's on board with that. He is 60 and plans to continue working for about 6-10 years (likes profession).

Here are the questions:
1. What should he do with the RRSP and what are the tax implications? The investment options aren't great now (1% management fee on top of actively managed mutual funds). In a perfect world he could move that money to the US but what is the most efficient way to do that while minimizing taxes along the way? Would he have to pay canadian tax and US tax if he took it all out now and moved it to the US?

2. Does anyone know how social security will treat him? Will he get a canadian equivalent or will he qualify for US social security? I haven't found a good answer on this anywhere.

3. What would you do in this situation?

pbkmaine

  • Walrus Stache
  • *******
  • Posts: 8564
  • Age: 64
  • Location: The Villages, Florida
Canadian/US dual citizen questions
« Reply #1 on: March 26, 2019, 09:02:08 AM »
https://www.ssa.gov/international/Agreement_Pamphlets/documents/Canada.pdf

In general, a person needs 40 quarters of qualifying employment to get Social Security. Did he work for a US company in Canada?

At the very least, he should create an account at www.ssa.gov and see what his records say.

Tabitha

  • Stubble
  • **
  • Posts: 119
Re: Canadian/US dual citizen questions
« Reply #2 on: March 26, 2019, 10:22:30 AM »
For one, he can transfer that expensively managed RRSP to a lower cost RRSP. RBC's action direct comes to mind, and they're in the US banking system too. (Many Canadian banks use RBC as their clearing house.)  If he leaves it in a (low cost) RRSP, it'll still continue to accumulate pre-tax. He will want to carefully time his eventual withdrawals to minimize tax.

 If he took it out of the RRSP yes, he would pay tax on the withdrawal immediately. There would be a withholding on the Canadian side, which he could file taxes to CRA to reduce, and he would have to declare the income to the IRS, who will be happy to collect their piece.  And It's unlikely he'd have tax-advantaged accounts available to him right away in the US if all his recent income has been Canadian sourced..

I'm assuming if he's ever opened a TFSA he's aware of the restrictions US citizens should follow to avoid the passive trust trap. TFSAs have never been folded in to the tax treaties.

Pkmaine provided the tax treaty link, but in short, your friend is likely best off where he had the longest working history. I will eventually collect CPP, my spouse SSN. You can collect either in either country. An interesting side note is that CPP is fully funded on a going concern basis, while SSN holds "trust fund debt" from the federal government. Might make a difference in those sustainability discussions.

I look at our retirement fund savings on both sides of the border as an extension of diversification. Although we do have to watch out for denting that advantage when we've carelessly invest in overlapping assets on both sides.

cincystache

  • Bristles
  • ***
  • Posts: 284
Re: Canadian/US dual citizen questions
« Reply #3 on: April 06, 2019, 06:20:49 PM »
@pbkmaine
He worked for a canadian company. Good idea on signing in to ssa.gov and seeing where he stands. I'll pass it along.

@Tabitha
Thanks for the info, I appreciate your perspective and will pass along RBC as a suggested place to research. I'll also get him thinking about social security OR CPP.

If he's targeting 60/40 stocks and bonds overall, would it make sense to put the bonds in the canadian account since they will be taxed more coming out and keep stocks in the taxable US accounts where they will be taxed very little with better growth potential?

Tabitha

  • Stubble
  • **
  • Posts: 119
Re: Canadian/US dual citizen questions
« Reply #4 on: June 18, 2019, 11:44:20 AM »
I will eventually collect CPP, my spouse SSN.

A recent visit to SSAdmin offices led to a question on my eligibility for survivor benefits on my husband's social security.  Apparently my entitlement for survivor benefits is based our US work history and will ignore my CPP income/entitlement. Theoretically I could collect full CPP on my earnings and full survivor benefits on his. Still to be confirmed