Reporting RRIF withdraw in US income tax

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cdninus
Posts: 3
Joined: Wed Mar 10, 2021 12:43 am

Reporting RRIF withdraw in US income tax

Post by cdninus »

Hi,

I'm currently living in US and have multiple RRIF accounts in Canada from which I'm taking ~10% withdrawals each year to pay 15% tax to CRA. For each withdrawal, I calculate taxable portion using the following formula:

a) non-taxable amount from the previous year
b) FMV of the account just before the withdraw date
c) Gain = b-a
d) Withdraw amount
e) Taxable withdraw amount = d * (c / b)
f) Non-taxable withdraw amount = d - e
g) Remaining non-taxable amount = a - f

In 2020, one of my RRIF accounts had substantial loss causing the net gain for all my RRIF accounts combined to be negative even though other accounts had positive gains. For example, let's say I have two accounts which had the following gain/loss:
account #1: gain = -$400
account #2: gain = $100
net gain = -$300

Here are the questions I have:
1) For account #1, is the taxable withdraw amount = $0 (due to negative gain) and full withdraw amount = non-taxable withdrawal?
2) What is the net taxable income from withdrawals from these two accounts that I need to put on form 1114? Is it just the taxable withdraw amount from account #2?
3) Is there any way I could use the negative gain from account #1 to reduce my income tax?
4) I found out that I could reduce my tax if I elect to claim withholding tax as itemized deduction vs foreign tax credit. Is there any long term downside for doing this?
5) Should FMV (from point b from above) be determined at the EOY of the previous year or just before the withdrawal?

Thanks in advance for your help!
nelsona
Posts: 18314
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Reporting RRIF withdraw in US income tax

Post by nelsona »

Without looking at your calculations (I have shown how so many times on here that I will not repeat or correct...

1. If you have a current loss position in one account (in USD), and that is the one you are withdrawing from, then you report taxable amount as ZERO for that account. Hopefully it will pick up at some point. If you totally collapse the account, you would report the taxable income as zero, but you could claim a terminal loss on schedule A. It is limited and would need to be combined with sufficient other itemized deductions to make it worth anything.

2. It would be the positive amount from account 2.
3. Only by what I mentionned in 1, if the account is closed.
4. This was usually the best way to use RRSP tax, but with the large increase in standard deduction ,you would need a substantial tax payment to make it worthwhile. But there is little downside to doing this, since carry forward of this tax will almost never be used up.
5. It should be from BOY of the year of withdrawal.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
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