RRSP Withdrawal while living in US

bissoj70 · Post by **bissoj70** » Thu Apr 10, 2014 3:11 pm

I am a Canadian, living in the US as a Permanent Resident. I cashed in an RRSP last year, have the form that shows the 25% non-resident tax withhold and my accountant here is telling me the following:

1) I owe the difference between the 25% already paid and my US tax rate
2) I owe a 10% early withdrawal penalty to IRS for cashing it out before I'm 59.5

I can almost understand #1 (not happy about it, but whatever) however #2 makes no sense to me at all. These RRSP funds were CDN dollars contributed before I left Canada 5 years ago and have not contributed to it with any US funds (can't continue to contribute to RRSP as non-resident) So how can IRS charge this penalty?

Wondering if my accountant doesn't understand something properly? should I seek a second opinion or does this sound right to people?

Thanks

nelsona · Post by **nelsona** » Thu Apr 10, 2014 5:30 pm

Before dealing with the withdaral, have you taken care of the annual filings you should have done on this account?

bissoj70 · Post by **bissoj70** » Thu Apr 10, 2014 5:34 pm

Yes... every year.

nelsona · Post by **nelsona** » Thu Apr 10, 2014 5:45 pm

Then, as you know, your US tax liability is only on the growth portion. You report the gross pre-tax on 7a of form 8891 (which you ahve filed every year) and the taxable portion on 7b, and this translates to 16a/16b of the 1040.

RRSPs are NOT subject to early withdrawal penalties.

You are dealing with someone who is clueless about cross-border matters, so be careful.