The good news is that every Canadian jurisdiction, apart from Newfoundland and Labrador, currently allows unlocking provisions for non-residents of Canada. This can be beneficial in providing financial flexibility, since typically the minimum age to begin withdrawals is 55, although this does vary (age 50 in British Columbia and Alberta), or can be non-existent (New Brunswick), however in all cases, LIF conversions are subject to yearly redemption maximums.
In order to provide further flexibility, certain jurisdictions (including federal, Ontario and Quebec), in addition to the cash withdrawal or LIF conversion option, also allow for either the entire or a portion of the locked-in balance to be unlocked through a transfer to a regular non-locked-in tax-deferred savings vehicle such as a registered retirement savings plan (RRSP) or a registered retirement income fund (RRIF). In this way, the funds can continue to be tax-deferred, and future withdrawals can be based on amounts and timing convenient to you, while benefitting from the ability to access low non-resident tax rates on RRSP / RRIF withdrawals in the future.
First, you will require a written determination from the CRA that states you are a non-resident of Canada for the purposes of the Income Tax Act. If you satisfy the Canada Revenue Agency’s (CRA) non-residency requirements, which is generally that an individual has ceased to be a resident of Canada for at least two calendar years, you must complete a “NR73 Determination of Residency Status (leaving Canada)” form and submit it to the CRA for approval. Once approved by the CRA, you must provide this written proof to your financial institution holding the plan, along with the appropriate withdrawal application form. You will also require written spousal withdrawal consent, or a certification if you do not have one. Furthermore, you may face additional requirements such as notarization, depending on jurisdiction.
It is important to consider that the CRA will include the gross proceeds as taxable income for the year of the withdrawal. The withdrawal will be subject to non-resident withholding tax at source. Non-residents are required to pay a flat 25% tax rate on amounts that are taxable under Part XIII tax. This rate can potentially be reduced to as low as 15%, which is a special rate available under the Canada-US tax treaty applicable only to “periodic” withdrawals. Your financial institution will remit the withholding tax to the CRA on your behalf. You will receive a T4RSP Statement of RRSP Income early in the year following the withdrawal. As a US resident taxable by the IRS / state tax authorities, you may be subject to additional taxation in the US, although this may be partially or fully offset with foreign tax credits for Canadian taxes paid.
If funds are not immediately required, additional considerations should be made such as if the funds should be reinvested and if so how, as well as potential exchange rate conversions, lost tax deferral opportunities, and any fees or penalties that are charged by your financial institution. There may also be restrictions specific to certain investment product types (e.g. a non-redeemable GIC that needs to mature beforehand). Moreover, assets in a locked-in plan are generally protected from creditors (other than an order for support payments) however, any withdrawals, including an unlocking of the plan, could then expose the withdrawn funds to potential future creditor claims.
As laid out above, pension unlocking for non-residents upon a move to the US can provide supplementary access to funds, potential tax savings compared to residents, and interesting planning opportunities. That said, just because you can, doesn’t necessarily mean you should. Consult your applicable pension jurisdiction authority, financial institution, and cross-border tax professional to discuss provisions and options specific to your plan, as well as optimizing your big picture cross-border tax and financial situation.