RRSP contributions

chewbacca · Post by **chewbacca** » Mon Feb 04, 2008 10:22 am

I scanned the RRSP questions in the forum but could not find an answer to this particular one.

I am a Canadian citizen currently living in the US and non-resident for tax purposes in Canada. Soon I will become a dual Canada/US citizen, at which point I may move back to Canada.

If I am living and working in Canada and contributing to an RRSP, will the US allow me to exclude the RRSP contributions from my US tax return?

The questions I found in the forum seemed to deal with people living in the US and commuting to Canada daily to work. Not sure if this makes a difference.

nelsona · Post by **nelsona** » Mon Feb 04, 2008 12:36 pm

Cuurently, RRSP contributions are not tax deductible on your US return. Those in your situation are supposed to track the contributions, and, when they begin taking withdrawal, that portion of the total RRSP will not be taxed by IRS.

The treaty is being modified to make SOME RRSP contribs deductible for IRS, but this applies ONLY to employer-sponsored RRSPs, ie. those arranged thru the employer.

chewbacca · Post by **chewbacca** » Mon Feb 04, 2008 9:52 pm

Have they defined fully what is meant by "employer sponsored"?

I've seen employers sometimes say that they have two RRSP plans.

One they call the "company plan" where the only money that goes in is a percentage of your salary contributed by the company. You don't contribute any of your own money to this one, it only contains money from the company.

The other plan they refer to as the "personal plan". This plan is self-contributing and contributions are made through payroll deductions from before tax earnings.

They both sound like employer sponsored plans to me. Do they perhaps separate it so that you get employer money whether or not you contribute any personal money? Just a guess.

Also, does this new employer sponsored RRSP rule go into effect for this tax year, 2008?

nelsona · Post by **nelsona** » Mon Feb 04, 2008 10:52 pm

These would both be employer sponsored.

The rule does not go into effect yet.

telly1 · Post by **telly1** » Tue Feb 05, 2008 8:06 am

The announcement at the top of the forum says that it went into affect on Jan. 1, 2008. ???

nelsona · Post by **nelsona** » Tue Feb 05, 2008 9:43 am

Indeed, january 1, is the effective date.

I would be starting my employer-sponsored contribs now.

Remember not to exceed $15,500 regardless of your RRSP contribution limit, as the treaty states that the maximum of each country applies.

chewbacca · Post by **chewbacca** » Tue Feb 05, 2008 10:27 pm

I'm wondering.

Even before the new Canada/US tax treaty concerning RRSPs, would the US Foreign Earned Income Exlusion have taken care of this situation in most cases?

For example, the 2007 foreign earned income exclusion is $85,700. Let's say I'm a dual Canada/US citizen who resided and worked in Canada for all of 2007. Let's say I earned $75,000 in 2007. Wouldn't the foreign earned income exclusion essentially make the US non-deductability of employer sponsored RRSP contributions a wash?

Or am I missing something here?

nelsona · Post by **nelsona** » Wed Feb 06, 2008 6:39 am

yes, it would and it has. The problem is for those living in canada but working in US, and vice versa. in these cases FEIE is not available.

telly1 · Post by **telly1** » Wed Feb 06, 2008 3:35 pm

Unfortunately, I still have some RRSP contributions to carry forward and don't need to use any this year to bring me to zero owing in Canada. I'd hate to make the contributions only to find I don't need them.

Do you know if the 401k contributions will be able to be carried forward?

nelsona · Post by **nelsona** » Wed Feb 06, 2008 5:35 pm

How canada will implement the 401(K) deduction is not clear at this point. They could allow it right off the wages (as in US), or they could make it a deduction. like 401(K).

But I'm quite sure that they will NOT allow you to carry forward 401(k) contributions, since these are made as a function of wages.