American in Canada? Dual-citizen?: Head straight to your RRSP first.

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mutual_funds-300x199This weekend I was told to chuck the mutual funds and ditch the TFSA. Odd advice for two components of what I thought was my idea of a fairly solid foundation of what I call my financial plan.

As most Americans in Canada know, it can be hard to find people to file our taxes north of the border – and expensive. Due to fairly recent changes it’s hard to keep up sometimes with what we should be doing to our money.  The rationale of this statement was rooted in the fact that I am an American citizen (dual, actually) and attempts to work around all the different IRS reporting rules to file compliantly (and cheaply) in the future. Turns out mutual funds are actually to be reported differently than individual stocks and bonds help in a trading account and unrealized gains don’t remain so for mutual fund reporting. Further, interest must be declared on any foreign-owned bank accounts (so much for interest free savings, TFSA!), and as a consequence any gains occurred within your TFSA must be declared.

After telling me what I did wrong, he did provide a solution for me however, and that was to stick to the RRSP. Max it out, as it is much more advantageous for your tax-savings to use theis as your primary savings vehicle.

For those not in the know, the primary difference of value between my service provider and an accountant is the financial  planning and tax advice that comes with an accountant (as opposed to simply filing your return). I was interested to hear some advice, surprisingly, at my last visit to H&R Block – further educating me on the world of personal finance.

Guess I’m glad I caught this now rather than later, eh?

 

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One response »

  1. I’m a Canadian about to head to the US and become a permanent resident. I too was advised to give up my TFSA prior to my move and don’t collaspe my RRSP (due to the US/Canada tax treaty where the US won’t tax the RRSP until I start withdrawing and only the gains are taxed, not the base contributions) and that I can continue to contribute to the RRSP until I get my green card and then declare myself as a Canadian non-resident for tax purposes.

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