RRSP Q&A: Should I transfer my overseas account to an RRSP?

From February 16 to 19, 2010, MoneySense.ca’s top financial planners are answering your RRSP questions. For the full list of questions answered — or to submit a question of your own — click here.

I have question about the immediate tax savings when transferring money into a RRSP. I have money overseas that is earning between 3% and 4%. I would like to bring it to Canada and move it into a RRSP.

The currency exchange rate is not very favourable at the moment. If I bring the money to Canada now, I will lose nearly 20% compared to if I waited until the exchange returned to previous levels. Will the tax saving I get from moving this money into a RRSP offset the exchange rate loss? I earn over $100,000 per year. —adviceneeded

Warren Mackenzie and Ken Hawkins: You are mixing up two different decisions. One decision is “should I invest in an RRSP”. If it makes sense to invest in an RRSP you should do it. The second question is “where will I get the money to invest in my RRSP”. If the money is currently in a different currency you have to make a decision as to how you expect that currency will do compared to the Cdn dollar. You are assuming that it is only a matter of time before the exchange rate returns to previous levels. We do not know if or when that will happen.

If you want to make an investment in the currency you hold, then you can buy an investment in your RRSP that will benefit form a rise in that currency. As an example if your currency is in Euros, then buy you can an investment such as an ETF or Mutual Fund that invests in Europe.

Next question: If I take money out now, what year will I report it in — 2009 or 2010?

Back to main RRSP Q&A page.

What do you think? Let us know in the comments.