worth it to defer tax on 8891 in years when RRSP lost money?

candleberry · Post by **candleberry** » Mon Apr 07, 2008 2:08 pm

As with many on here, I am backfiling 8891's to 2002. However, as I go over the RRSP statement records, there are some years when some of the plans have actually lost money. Does this become a potential deduction in that particular year? Or does this just reduce the amount of tax I will owe when I start to receive distributions?

Thanks in advance.

nelsona · Post by **nelsona** » Mon Apr 07, 2008 2:53 pm

IRS has done away with the ability to "cherry-pick" which years you wish to avail yourself of deferral and which years you don't. Now, once you elect, it is irrevocable.

Remember that even in years like the early 00's when RRSP VALUES were going down, they were still generating distributions, which, without the deferral, were taxable INCOME in US.

Your US tax liability will alwys be the difference between the total amount you withdraw from the RRSP minus the book value the day you became taxable in US. The decision not to defer in certain years (ie. before making the final decision to defer) merely reduces that total by the amount you reported in those years.

candleberry · Post by **candleberry** » Mon Apr 07, 2008 2:58 pm

Nelsona, thank you for your reply. The more I thought about it after I posted that, the more it seemed evident that it would just become incredibly complicated (ie more so than it already is!) and I should just make my declaration to defer for all those years and be done with it.

nelsona · Post by **nelsona** » Mon Apr 07, 2008 3:02 pm

Yup. It did makes sense in the past, pre-2202, especially for US citizens living in canada. Even in good years they would declare the income, and because of FEIE rules at the time, owe no US tax, and get more of their RRSP (more than just the contributions) considered tax-free.

No more because of the rev proc in 2002, and becuase of the new FEIE rules of 2006.