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Can a US broker be used to trade within your RRSP umbrella so you can still have a tax deduction when you make an investment? I don't usually exceed my RRSP limit in a year so I'm not sure if it's a good idea to use after-tax dollars even if the growth rates are higher. An admittedly quick look at it doesn't look promising. After all implications are considered, are you ahead or not?

A self-directed RRSP is administered by a trustee usually connected with the brokerage firm you are dealing with. I don't know so sure but i suspect that the tax act may specify that the trustee must be a Canadian trust co so that the required withholdings on any RRSP withdrawals and other stipulations can be enforced. It would be impossible for the Canadian gov't to enforce the rules of an RRSP if the trustee was not a Canadian entity. Also the Canadian trustee would also have a difficult time enforcing their responsibilities if the broker was not Canadian. This doesn't mean they have to be Canadian owned only that they are registered as a corporation in Canada.

Whether or not it is a good idea to invest after-tax dollars in foreign companies or use a foreign broker is a question you have to figure out yourself depending on your circumstances. Some of the questions you have to consider are:

1. Are you really saving money by putting it into an RRSP. Are you going to have a lower tax rate in the future. This looks better today after the last budget when the gov't promised to eliminate bracket creep. Hopefully they do and base it on the full cost of inflation not just the core rate which they use for other purposes.

2. Are you using your RRSP funds to generate capital gains, or dividends or interest income. You lose the special tax rates for dividends and capital gains when they are inside the RRSP. With 1/3 of any capital gains being taxfree outside of an RRSP I'm not sure that the RRSP shelter is all that good anymore. You have control as to when to realize any capital gains and you can spread them out over several years if you want to similiar to choosing when you withdraw funds from your RRSP.

3. If you are a frequent trader RRSP funds may be better as the tax dep't. could possibly deem you to be in the business of buying and selling stocks.

4. Are you planning on using some of your RRSP funds as a mortgage to buy a house. Definitely a good reason to invest in an RRSP.

5. Are you using the RRSP to split your income in the future with your spouse. This can be a very positive move to make and reduce your taxes.

6. If you are maxed out on your foreign content inside your RRSP and still want to buy individual US stocks then you have to purchase outside your RRSP.

7.If you are looking at the much lower commission rates for US discount brokers, planing on trading fairly frequently and can find one who will take your account and that you can trust then using a US discount broker is a good idea.

good luck

PS if you find a good US broker please provide this board with the name.
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