Today’s article about “Non-Resident RRSPs” is an anonymous guest post. I don’t normally accept anonymous submissions. But it’s a great article. It’s not back-link SPAM, nor a sponsored post, nor a lazy article I outsourced from India. It’s also about a topic that I consider extremely important: how Canadians can escape their insufferably arrogant, socialist, overpriced homeland.
After university, I was offered a job in the United States. It was pretty much impossible to turn down. I had no significant ties in Canada (i.e. no serious boyfriend), my family wasn’t too far away (Editor Joe’s note: 99% of Canadians live in a single apartment building at the Detroit-Windsor border crossing), and the job offered a pretty good amount of money — far more than I would have started at in Canada with the exact same job description. I am now considered a non-resident in Canada for tax purposes, which makes my financial situation a bit interesting. Non-resident RRSPs (Registered Retirement Savings Plans) are probably the weirdest part of it.
I’ve always loved organizing my money, but this was a new twist. Most people I knew had moved to the States right after university with a job offer, like me. But, unlike me, they had no savings. I had never taken out student loans, so I didn’t have to worry about sending money back to Canada to cover those. I didn’t know anyone else with money in RRSPs, TFSAs, or much in the way of savings accounts. My employer had a nice international relocation package but, unfortunately, it didn’t include any tax advice. So where to turn for advice? Tax treaties and the CRA website, of course!
I earned quite a bit of money throughout my university years (thanks co-op program!). I slowly realized that I had no immediate need for that money, so I started to max out my RRSPs — including going back to past years. I am proud to say that I maxed out my RRSPs for most of the years of university, except for the last one. I put some money into a TFSA (Tax-Free Savings Account) instead that year but, based on 20/20 hindsight, I really should have put it into an RRSP.
In university, my friends (the few who knew anything about investing) made fun of me because I had zero interest in the stock market. I put all of my savings in GICs. They told me that GICs weren’t really investing, that they wouldn’t keep up with inflation, etc. Well, I lucked out. Throughout the “Great Financial Collapse”, my RRSPs earned 4%+ consistently. My allocation strategy has changed since then, but being super conservative during university worked out well.
Since TFSAs are so new, the IRS still doesn’t recognize them. Translation: you have to declare all income within your TFSA on your US tax return just like normal income. Things may have changed now but, honestly, it’s just been way easier for me to keep the money consolidated. I didn’t have much in my TFSA when I left Canada, so I just transferred it all out into my taxable savings account, which made life way easier.
RRSPs, on the other hand, aren’t so bad. Some days it seems easier to just cash them in (particularly during tax season) but I won’t. They will grow tax-deferred until I need them. I’ll just keep filling out some specific forms on my US tax return each year.
There is one catch for non-resident RRSPs that most people would be concerned aboot (I mean, “about”): after you move to the US, you can’t make any trades in your RRSP. Opening and closing GICs is completely fine, but trading is not. So if you have stocks or mutual funds, you’re in a bit of a situation because you can’t touch them while you’re living in America. I think there are ways around this, but it’s not really worth it for the amount of money that I have in Canada. So, in retrospect, I am really glad that I “only” bought GICs in my RRSPs. They’ve been providing me with nice returns, which has helped to offset the stock market’s ups and downs. GICs offer far better rates in Canada than in the US, while stock index funds are much cheaper down here. My non-resident RRSPs still make up a pretty good portion of my portfolio’s overall fixed income allocation, so I think I’m using my non-resident RRSPs in a way that wisely supports my allocation strategy.
Stay tuned for more! If Joe lets me, I’ll turn this into a regular series on how being a Canadian citizen living in America affects my finances. (Editor Joe’s note: I’d love to have more posts on this topic!)