RRSP distribution

[dp]

Nelsona,

Thank you for your help. Let me confirm my understanding of your meaning:

So long as my RRSP is an individual retirement savings account, purchased by me alone, directly from the financial institution with which I do business, the principal is nontaxable in the USA when I take the distribution. (Since I have already transferred my RRSP to a RRIF, it should not be taxable from my RRIF either, because the RRIF is the same account as the RRSP, when the latter is in the income-paying mode.)

What documents should I give IRS to prove the pension is nontaxable? When should I give to IRS?

[nelsona]

I think you are misunderstanding. Only YOUR contributions are non-taxable, not the growth.

So, if you have meticulously kept track of your contributions year-by-year, say you contributed $100K, then when you begin to take the RRIF (yes, the RRIF enjoys the same treatment), you will be able to reduce the GROSS pension by a factor approx equla to proportion the current value of your RRIF to your contributions to come up with NET taxable.

So, if your RRIF is now $500, in the first year you take some out (say 20K), you will report $20K gross and 16K net taxable (this will be reported on your 8891, and transferred to your 1040 line 16.)


You should keep the spreadsheet you have been tracking your year-by-year contributions (along with, now, your year-by-year gros nad net withdrawals), until IRS asks for these.

[dp]

Nelsona,

Thanks for your help. Could you please confirm the following calculation of the second year’s taxable pension?

In your example, after first year’s withdrawal, my RRSP contribution was reduced to $96K (100K – 4K), right? If my RRIF is now $490K at the end of second year and I take $20K again, the net taxable pension will be $16.08K (20K*(490K – 96K)/490K).

dp

[nelsona]

Yes.

More neatly: 20K *[1-(96/490)]

the following year the 96K becomes 92.08K, and so on

[nelsona]

... and just to be absolutely accurate, the value of your RRSP for this calculation should be its market value on the day you take out your first withdrawal for that calendar year.

[dp]

Assuming I make an automatic withdrawal from my RRIF every month, how is the calculation done?

[nelsona]

Re-read what I said. "market value on the day you take out your FIRST withdrawal for the year"

So, while the total in USD will bedtermined by adding up each withdrawals made using either daily or average USD conversion rates, The total RRSP value for the purposes of the above calculation sghould be done before you make that first withdrawal.