My situation ... USC permanent resident of Canada, will continue to live in Canada during retirement. Have several RRSP's ... all IRS/FinCEN forms are up-to-date. Elected on 8891 to defer US tax.
Retiring soon, will need to decide: convert RRSP to an RRIF, or use RRSP to purchase a registered retirement ANNUITY.
My understanding is ... for RRIF, continue to file Form 8891, continue to check Beneficiary box on Line 5, continue to check YES on line 6a, fill in Line 6b, enter amounts on Lines 7a, 7b, and 8. Easy, basically same concept as RRSP.
Not sure about how I would report an ANNUITY purchased with RRSP money, other than to report the retirement income on Line 16 of Form 1040. Would I still continue to file an 8891 also (Beneficiary or Annuitant), or just stop filing 8891 after reporting a ZERO year-end balance in RRSP in the year in which the annuity is purchased? Form 8891 doesn't appear to deal with annuities, and an annuity wouldn't appear to have a "plan balance" to report on Line 8 in any event.
For US reporting purposes, is there any distinct advantage/disadvantage in the Canadian RRIF/ANNUITY choice?
Any thoughts, experiences ... thanks very much.
Form 8891 for RRIF ... what about ANNUITY ex RRSP ...
Moderator: Mark T Serbinski CA CPA
Putting aside the advisability of taking an annuity at this time, you would no longer file an 8891 if you w]switched to annuity.
As a RRIF, the US taxability would be unchanged from whayt it was as an RRSP: you have non-taxable portion based on your undeducted contributions.
For an annuity, you would have a difficult calculation, since your annuity, would be 100% taxable in Canada, like your RRIF, for US puposes it would have a taxable and non-taxable portion, again based on the contribitions you made. The trouble would be that your payout, while based on the lump-sum you converted, would not have the same basis as in the US, and it would be difficult, I imagine, to use the standard methods of determining what portion of your annuity was taxable (ie general rule, etc).
As a RRIF, the US taxability would be unchanged from whayt it was as an RRSP: you have non-taxable portion based on your undeducted contributions.
For an annuity, you would have a difficult calculation, since your annuity, would be 100% taxable in Canada, like your RRIF, for US puposes it would have a taxable and non-taxable portion, again based on the contribitions you made. The trouble would be that your payout, while based on the lump-sum you converted, would not have the same basis as in the US, and it would be difficult, I imagine, to use the standard methods of determining what portion of your annuity was taxable (ie general rule, etc).
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Putting aside the advisability of taking an annuity at this time, you would no longer file an 8891 if you w]switched to annuity.
As a RRIF, the US taxability would be unchanged from whayt it was as an RRSP: you have non-taxable portion based on your undeducted contributions.
For an annuity, you would have a difficult calculation, since your annuity, would be 100% taxable in Canada, like your RRIF, for US puposes it would have a taxable and non-taxable portion, again based on the contribitions you made. The trouble would be that your payout, while based on the lump-sum you converted, would not have the same basis as in the US, and it would be difficult, I imagine, to use the standard methods of determining what portion of your annuity was taxable (ie general rule, etc).
As a RRIF, the US taxability would be unchanged from whayt it was as an RRSP: you have non-taxable portion based on your undeducted contributions.
For an annuity, you would have a difficult calculation, since your annuity, would be 100% taxable in Canada, like your RRIF, for US puposes it would have a taxable and non-taxable portion, again based on the contribitions you made. The trouble would be that your payout, while based on the lump-sum you converted, would not have the same basis as in the US, and it would be difficult, I imagine, to use the standard methods of determining what portion of your annuity was taxable (ie general rule, etc).
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Hi Nelsona ... thank you for your response ...
Agreed that the "advantage of 100% certainty of income" from a retirement annuity purchased with RRSP money would have to be weighed against "the likelihood of higher income from an RRIF with slightly less certainty", especially in the current interest-rate environment.
Just doing some advance planning now and making sure I understand the 8891 filing requirements for my choice - thank you for confirming "what I sort of suspected" - namely, 8891 would not be filed for an annuity.
As you note, the calculation of taxable and non-taxable portion of RRIF income would probably be a bit easier than it would for an annuity - you have described previously in this forum how to do that calculation (for an RRSP/RRIF distribution) - basically, a fairly simple proportional calculation.
Having reviewed Pub.939 and Section 72 to some extent, I understand that the tax-free part of an annuity payment would be based on the "ratio of my investment in the contract to the total expected lifetime return", so definitely a bit more complicated, apparently, using the actuarial charts in Pub.939.
Anyway, thanks again, for commenting about Form 8891 requirements.
Agreed that the "advantage of 100% certainty of income" from a retirement annuity purchased with RRSP money would have to be weighed against "the likelihood of higher income from an RRIF with slightly less certainty", especially in the current interest-rate environment.
Just doing some advance planning now and making sure I understand the 8891 filing requirements for my choice - thank you for confirming "what I sort of suspected" - namely, 8891 would not be filed for an annuity.
As you note, the calculation of taxable and non-taxable portion of RRIF income would probably be a bit easier than it would for an annuity - you have described previously in this forum how to do that calculation (for an RRSP/RRIF distribution) - basically, a fairly simple proportional calculation.
Having reviewed Pub.939 and Section 72 to some extent, I understand that the tax-free part of an annuity payment would be based on the "ratio of my investment in the contract to the total expected lifetime return", so definitely a bit more complicated, apparently, using the actuarial charts in Pub.939.
Anyway, thanks again, for commenting about Form 8891 requirements.
The problem with your annuity is that the "investment in the contract" would NOT be the lump-sum you put in the annuity, it would be a number considerably smaller than that. It could even be zero, if all your contributions had been made thru an employer plan.
You would in essence have to track 2 annities: one funded with purely non-taxable (from IRS standpoint) funds (and thus the taxability determined following one of the rules of Pub 72) and one that would be funded with taxable income (and thus having the proceeds being fully taxable -- much like a US annuity funded with a US pension account).
And since 8891 would not attach to the annuity, you *probably* would then be required to file 3520 in its place, which is more burdensome.
You would in essence have to track 2 annities: one funded with purely non-taxable (from IRS standpoint) funds (and thus the taxability determined following one of the rules of Pub 72) and one that would be funded with taxable income (and thus having the proceeds being fully taxable -- much like a US annuity funded with a US pension account).
And since 8891 would not attach to the annuity, you *probably* would then be required to file 3520 in its place, which is more burdensome.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
One thing I neglected to mention was that, should this annuity be mainatined under an RRIF umbrella, then of course 8891 would attach. The only problem you would face is the calculations I outlined above.
The wording of the instructions of 8891, since they refer to 939 (which is specific to annuities) would eem to indicate, that, to the IRS at least, it is possible to have anuity be a RRIF and vice versa.
I just don't know how your annuity is being sold to you.
And I'm pretty sure your annuity would have a value at any given time for line 8 purpoese (or for 3520 purposes).
The wording of the instructions of 8891, since they refer to 939 (which is specific to annuities) would eem to indicate, that, to the IRS at least, it is possible to have anuity be a RRIF and vice versa.
I just don't know how your annuity is being sold to you.
And I'm pretty sure your annuity would have a value at any given time for line 8 purpoese (or for 3520 purposes).
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best