A foreign plan is a type of retirement strategy that is offered in the nation of Canada. Unlike other types of retirement programs, this plan is made available to individuals who intend to retire outside the country, or have someone within the country who can establish and manage the plan on his or her behalf. The plan is often funded by establishing a registered retirement savings plan or RRSP and periodically making contributions to that plan. Eventually, the proceeds from the RRSP are rolled into what is known as a registered retirement income fund, or RRIF, and then disbursed to the recipient according to the provisions of the plan.
Citizens of any nation are free to participate in a foreign plan. For those living in the country, it is possible to establish the plan and fund it with any income sources that originate from outside Canada. In the event that the beneficiary of the plan is not a Canadian citizen or does not reside in Canada, an individual or entity that is physically located within the country must establish or manage the fund for the beneficiary.
One of the more common reasons for creating a foreign plan is to provide ongoing financial support for a beneficiary that does not reside within Canada. The beneficiary may be a relative or other loved one, or even a charity that is important to the individual who established the plan. Others who work in Canada but plan on retiring in another country, such as the United States or the United Kingdom, may establish a foreign plan as a means of saving money earned from sources outside the country, and using the proceeds of the fund to augment any other existing retirement or pension plans that may exist.
While the foreign plan does offer practical solutions for funding retirement, this approach may or may not be right for everyone. The nature of this type of retirement strategy can create significant complications with the filing of Canadian tax returns, requiring the account owner to engage the services of a tax professional who is well-versed in the tax laws that are relevant to this type of financial arrangement. Doing so will help ensure that the tax returns account for any contributions in a manner that is in compliance with current regulations, and prevent the imposition of late fees or other types of tax penalties. For this reason, anyone interested in establishing this type of retirement plan should consult with professionals and understand all the tax implications before proceeding.
