Calculation of RRSP Income

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Calculation of RRSP Income

Post by Ruth »

Wondering how to calculate the IRS-taxable income for an RRSP withdrawal.

In Canada, CRA will tax the entire withdrawal amount, since both the contribution amount and the earnings are deferred. However, since the IRS allows tax deferral of only the internal earnings, I'm wondering if there's a formula for calculating the portion of an RRSP withdrawal amount that is the taxable earnings for IRS purposes.

So suppose an RRSP deposit account is worth $1,000 and the cumulative contribution amount was $400. In 2022 I withdrew $100, leaving $900 in the RRSP account. Do I simply report $60 as the taxable income to IRS (the earnings portion of the withdrawal) and record $360 as the revised contribution amount as the starting point for the next year?

I.e., would the formula be:
Current Taxable Earnings reported to IRS = (Withdrawal Amount) * [(Starting RRSP Value) - (Starting Contribution Balance)] / (Starting RRSP Value)
or in this case = $100 * ($1000 - $400)/$1000 = $60

And the updated Contribution Balance = (Starting Contribution Balance) - (Withdrawal Amount - Current Taxable Earnings)
= $400 - ($100 - $60) = $360

Thanks for any help you can give.
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Re: Calculation of RRSP Income

Post by nelsona »

That looks right. many posts have explained this in the past in great detail.
nelsona non grata. Non pro. Search previous posts. Happy Browsing :D
I will be taking may usual break until MAY. In the meantime, please direct your questions to ND.
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