RRSP withdrawal as resident alien

panek · Post by **panek** » Wed Oct 23, 2013 7:04 pm

Hi,

I know there are many threads on RRSP withdrawals but I've read through dozens and still can't find the answer to my question.

I am in my first full year as a US resident alien having arrived to California last year on a TN Visa. I will be filing this year's taxes with a tax specialist (perhaps one of the fine folks at Serbinski) so I'm just looking for general information.

I have about $14,000 in RRSPs that I would like to withdraw.

I correctly filed my 8891 and FBAR and all other relevant forms during last year's return.

I understand that there is a 25% withholding fee in Canada but I am unclear as to how much of that I can recover (if any) in tax credit on my US return.

What is the best way to withdraw my RRSP? Converting to an RRIF is probably not feasible as I understand that I wouldn't be able to withdraw until 2015.

So how much will I eventually lose when everything is taken into consideration? Ballpark. 25% 20% 30%? Will the withdrawal count as WW income and be taxed at my full US income tax rate? Is there any benefit to withdrawing in smaller amounts (e.g., $5000 in 2013 and $9000 in 2014?).

I have been working full time in the US. Single. No other investments. Made around ~$100k last year.

Thanks!

panek · Post by **panek** » Wed Oct 23, 2013 9:15 pm

As a quick follow-up: do I need to backfile an 8891 for each year the RRSP was active? I filed one for last year (the year I moved to the US).

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JGCA · Post by **JGCA** » Thu Oct 24, 2013 5:24 pm

First of all the 8891 you may have filed for previous years only applied to Federal 1040 tax return, Cali does not allow the accreud earnings to accumulate tax free. The withdrwas will be subject to tax on the Fed and Cali tax returns and credit will be affored to you for tax paid to CRA.

panek · Post by **panek** » Thu Oct 24, 2013 5:48 pm

Hi JGCA,

I've accrued very little on my RRSP so taxation will be small (I elected to defer Federal taxes last year and paid Cali taxes on my earnings last year). I've probably accrued a few hundred dollars.

From your response, it appears that the withdrawal is subject to additional state and federal taxation beyond the 25% that the CRA applies, correct? If so, my question is how is that tax applied and can you (or anyone else) estimate how much of the original value of the RRSP I would end up owing to the IRS? Is it simply added to WW income?

panek · Post by **panek** » Thu Oct 24, 2013 5:49 pm

My concern is how much of the cash value of the RRSP can I use to pay off debt?

If there are additional taxes to be applied on the US side, I should save some of the cash value of the RRSP in order to pay those taxes.

panek · Post by **panek** » Thu Oct 24, 2013 6:38 pm

Everything I've read on this forum seems to suggest I'll only be taxed on the earnings of the RRSP since moving to the US (which is very little in my case).

panek · Post by **panek** » Thu Oct 24, 2013 6:41 pm

In researching, I also believe that I incorrectly used the market value of the RRSP rather than the book value on last year's 8891. Does that need to be corrected before I withdraw?

nelsona · Post by **nelsona** » Fri Oct 25, 2013 9:52 am

The 8891 uses year-end MARKET value, so you were correct on that. However, to determine your future taxability on any withdrawals, the BOOK value upon commencing US taxation is what matters, and that figure doesn't go anywhere on your 8891, it is something you have to record for yourself.

Since you probbaly have bery little taxable portion at this point (unless you forgot to crystalize your gains before moving to US), then using the 25% Cdn tax as a credit is not likely to benefit you very much, since you can only get credit for the US tax that you would otherwise pay on that particular income.

But you certainly can use the 25% tax as a deduction on your 1040 as foreign tax paid on schedule A. The only thing you have to watch whaen doing that is AMT.

panek · Post by **panek** » Fri Oct 25, 2013 2:32 pm

Great thank you nelson! I unfortunately did not crystalize my gains when I left as I wasn't yet sure whether I'd be returning to Canada or not. But my gains were very small so it seems a deduction is the way to go.