What to do with U.S. dollar RRSPs in retirement

Some retirees will convert a portion of their RRSP to a RRIF for the tax advantages. With the pension income amount tax credit, at least $2,000 of withdrawals from a RRIF is tax-free (or close to it), and the bulk of your RRSP funds can be left intact.

As you have noted, Liz, you have to convert your RRSP account to a RRIF soon, given your age. The new RRIF and your existing RRIF need not be combined. If your brokerage allows you to have a U.S. dollar RRSP account, it probably also offers U.S. dollar RRIF accounts.

RRIF withdrawal rules

RRIFs have a minimum annual withdrawal requirement. It is a pre-determined percentage of your account balance as of December 31 of the previous year, and it increases each year as you age. If you convert your RRSP to a RRIF at 71, the minimum withdrawal in the subsequent year is 5.28% of the account value. RRIF minimums are calculated on an account-by-account basis, so you cannot take more out of one account in order to take less than the minimum out of another.

There are no maximum withdrawals for RRSPs or RRIFs, though practically speaking, cashing in your whole account is not generally advisable, given that withdrawals are fully taxable.

The same rules that apply to maintaining separate accounts and taking minimum withdrawals also apply to other registered retirement accounts, like locked-in RRSPs, Liz. The only two caveats are that locked-in RRSPs must be converted to a life income fund (LIF) or similar account (depends on the province) and there are maximum withdrawals each year that also depend on age, in addition to the annual minimum withdrawals.

The advantages of having a U.S. dollar RRSP or RRIF

The benefit of having a U.S. dollar RRSP or RRIF is you can buy U.S. investments with lower transaction costs than doing so with a Canadian dollar account. This is because you can hold U.S. dollar cash and avoid the need to convert Canadian dollars to U.S. dollars to buy a U.S. dollar investment; you can also avoid the need to have U.S. dollar proceeds converted to Canadian dollars upon sale. U.S. dividends that are not reinvested can accumulate in U.S. dollars instead of Canadian dollars. You can also take withdrawals in U.S. dollars, which may be helpful if you travel to the U.S.

Foreign exchange fees can be 1% to 2% at a brokerage. When buying or selling U.S. dollars in a U.S. dollar RRSP or RRIF, those fees are avoided, Liz.

Another option: Canadian Depository Receipts

If you cannot open a U.S. dollar account, one option for your existing RRIF is to consider Canadian Depositary Receipts (CDRs). CDRs allow you to buy foreign companies that trade on a Canadian stock exchange in Canadian dollars.