RRSP tax in USA

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formerexpat
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Joined: Thu Mar 18, 2021 4:41 am

RRSP tax in USA

Post by formerexpat »

Background: Was out of USA starting from 2011 and in Canada 2014-2019. Put in $X in RRSP while employed in Canada (did not take use this as a deduction in US as no tax benefit in doing so). Company put in $Y matching. Capital Gains were $Z. Adding $X+$Y+$Z=$AAA. I took out roughly 1/2 $AAA in late 2019 as a resident of Canada. Last day of Canadian residency was 12-31-2019. Had my Canadian accountant file taxes in 2019 for both US, State, & Canada. In early 2020, took out the remaining 1/2 $AAA and RSP firms took out required 25% non-resident income taxes and forwarded to CRA; I have proper tax form statements showing that. I transferred, legally from my Canada bank to US bank the money so clearly there is a record (amount over $10k USD but under Form 8938 limits). I will be in marginal tax bracket of 22% in 2020 for USA. I am under 59 years old if this information is important.

I can't figure out how to show the income on US forms other than line 5b Pensions & Annuities taxable amount. But, how do I take the credit for Canada taxes. I don't want to be double taxed. I would normally use Form 1116 if I had foreign residency but I don't. All days of 2020 were as a US tax resident and I was on US soil all 366 days of 2020. I have to think there are other former expat Americans who are taking money out of their Canada RSPs but need some help here. Any link for me to follow?
nelsona
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Re: RRSP tax in USA

Post by nelsona »

The NON-taxable portion is the part that YOU put in and did not claim.
The rest is taxable.
Divide this taxable portion between the withdrawals you made in 2019m and the ones you made in 2020.

form 1116 is used to determine the foreign tax credit. Your accountant would have done something like this in 2019, no?
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
formerexpat
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Joined: Thu Mar 18, 2021 4:41 am

Re: RRSP tax in USA

Post by formerexpat »

nelsona wrote:

> form 1116 is used to determine the foreign tax credit. Your accountant
> would have done something like this in 2019, no?

Yes, accountant filed that form last year (2019 tax filing) but I thought I had to be a foreign resident to be able to use it for 2020 taxes. I guess I was getting confused with form 2555 or a different one. So, given my US marginal tax bracket is less than Canada paid taxes and I will only have to pay taxes on $Y+$Z leftover that was received in 2020 (and I paid Canada taxes on $X+$Y+$Z), it is likely I will not be out additional taxes it sounds like.

Problem is, trying to figure out the amount prior accountant put on there from 2019 taxes. Accountant on maternity leave. But since I emptied the accounts, and I know total gain, I can just subtract 2019 gain to get 2020 gain.

Let me know if you think I am misunderstanding.

Drew
nelsona
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Re: RRSP tax in USA

Post by nelsona »

Sounds right.

But regardless of the taxrates in each country, the foreign tax credit is set up to add the income at your marginal rate, but onlt credit you at the effective rate, so you might end up owing.
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nelsona
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Re: RRSP tax in USA

Post by nelsona »

RRSP income is general limiation income, btw, for 1116 purposes.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
formerexpat
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Re: RRSP tax in USA

Post by formerexpat »

nelsona wrote:
> Sounds right.
>
> But regardless of the taxrates in each country, the foreign tax credit is
> set up to add the income at your marginal rate, but onlt credit you at the
> effective rate, so you might end up owing.

Can you give an example?
nelsona
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Re: RRSP tax in USA

Post by nelsona »

Marginal tax rate is the tax on your last dollar. Effective rate is the average rate (Total income/Total tax) which is obviously lower than your marginal rate.
Your software will give you an concrete example.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
formerexpat
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Re: RRSP tax in USA

Post by formerexpat »

ok, thx
Bluebell
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Re: RRSP tax in USA

Post by Bluebell »

Hi, I also have a question about RRSP’s. I am a American citizen who used to live in Canada till I was divorced but while I lived in Canada I bought Canadian RRSPs to offset my tax obligation anyways fast forward 15 years I am living in the United States and I am ready to retire and now I have RRSPs in Canada that I want to cash in as a lump sum and I am wondering what And how to go about doing this And if I will have to file Canadian income taxes as well as in the states for this money any information would be helpful thank you!
Bluebell
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Re: RRSP tax in USA

Post by Bluebell »

I should also state that I was living in a border town and I crossed a bridge to go back-and-forth to work and none of my money was made in Canada all of it in the US
formerexpat
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Re: RRSP tax in USA

Post by formerexpat »

Bluebell,
Nelson knows this better than I do. However, lump sum is 25% withholding - no need to file Canadian taxes. CRA will issue a statement if RRSP firm doesn't. You do need to show this on the US side so Federal and State. But, as Nelson pointed out, there is an offset which should make you whole. If you want to lower the rate to 15%, you do have options but it is on a drawdown each year and not lump sum. Best bet is to have an accountant do your taxes for the year you take the money. If taking every year, then just copy what they did in subsequent years.

As for where you lived or worked back then, not sure it mattered provided you set up the accounts correctly.

Best of luck
Bluebell
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Re: RRSP tax in USA

Post by Bluebell »

Thank you so much for the information! I know The financial advisor I am working with in the states wants me to use the lump sum money to buy a car in Canada and Bring it back to the states but I don’t know if I’m very keen on that idea but at least all the Canadian money would be gone and I won’t have to worry about it down the road thank you so much again!
formerexpat
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Re: RRSP tax in USA

Post by formerexpat »

Be very very very careful about buying a car in Canada for importation in the USA. Different safety standards. I tried all the methods offered on the internet to bring my car down and customs wouldn't let me due to tire pressure monitoring system issues (has to be factory and not aftermarket). Do not believe internet postings that it is easy, blah blah, they are getting super tight on these standards. If you have a car, I would sell it in Canada as well and just drive a uhaul across. Also, right now I'm not sure Canada is a good deal to purchase and bring down (stronger CAD would make it more in your favor). Just bring cash across or transfer via transferwise dot com. If bringing cash do declare it, no tax implications at all as long as you show the RRSP statements or any other source of funds. It's perfectly fine to bring money into US. I did so via liquidating RRSPs into my tD acct and then transferwise across the border to my bank in US.
nelsona
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Re: RRSP tax in USA

Post by nelsona »

It has ALWAYS been difficult to import Cdn cars into US; thanks for confirming this.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
Bluebell
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Re: RRSP tax in USA

Post by Bluebell »

Hi,
I posted a while back that I wanted to cash in my RRSP’s in Canada and bring the whole lump sum amount back to the states. I plan on meeting with the accountant that deals with American Canadian taxes but have called the people where my RRSPs are to let them know What my intentions are And are running into angry people who really don’t want me to cash them in and getting the runaround telling me to phone different numbers to talk to different people has anybody had to deal with this and what do you do to make it more peaceful I’m just starting to get so stressed out and I haven’t even done anything yet
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