Cashing out RRSP

cellis10 · Post by **cellis10** » Mon Apr 07, 2014 11:50 am

Background: I am a US citizen who lived and worked in Canada as a landed immigrant from 1990 until 1999. Since returning to the US, I have reported my RRSP to both the IRS and the Dept of Treas. IRS Rev Proc 89-45, then form 8891 (though per my records, I seem to have not included the amount of my RRSP on the forms I submitted in 4 years from 2008-2011) and Form 8938 since 2011. I also seem tobe checking off Beneficiary instead of Annuitant, but hope that is not a big issue. Finally, I have done TDF90-22.1 except for 2002, 2009 and 2010.

Having spoken to the Treasury to confirm my missing forms, they suggested I use the new Fincen 114 to catch up on the 3 missing forms. I plan to do this ASAP unless there is some reason I should not. Treasury was very nice and did not seem to think I would be in trouble. When I asked about who I should contact at the IRS about the 8891 forms, they laughed and told me there really is noone to answer my questions or research for me. They said they get so many inquiries and there is nothing they can do. I explained that I just want to be sure I am not delinquent and the nice lady said if I am still getting my tax refunds, I'm fine. So, even though I submitted the forms, disclosing the account and its name, I'm unsure how to "fix" correcting the omission of reporting the value for those 4 years and also wonder if I need to correct the annuitant vs beneficiary. Thanks for any help.

nelsona · Post by **nelsona** » Tue Apr 08, 2014 11:40 am

You are the beneficairy. Nver use annuitant.

You could correst the old 8891's as this is still eprmitted. Wah tvalue were you putting on that lines?

What about the cash out since that is what you titled your post?

cellis10 · Post by **cellis10** » Tue Apr 08, 2014 12:32 pm

Thx!! So I will submit the 8891s for 2008, 2009, 2010 and 2011 with the amounts of the value of the RRSP at year end using the treasury yr end conversion rate, correct?
For the FBAR, the new FINCEN114 requires maximum value during the year, so I will submit those missing ones inidcating forgot to file and keep my fingers crossed:)

Once these are all submitted, if there is nothing else I need to do in order to be compliant, I plan to cash out the RRSP in 2014. Current value about $145,000 Cdn. If so, I want to be sure I report correctly for my 2014 taxes. This is my RRSP, but I file jointly with my husband.

1.) I know there will be a 25% withholding from Canada.
2.) I crystallized gains before I left Canada in 1999, so do I only need to figure the change in market value from the day I abandoned Canada to the day I cash out, and this will be the taxable portion? I left at teh end of Feb 1999 and the value was in the $70k range. I know the exchange rate for Jan, Feb and 1999 as well.
3.) Am I correct that 25% of #2 above is my foreign tax credit on Form 1116?
4.) Enter this info on Schedule B as well
4.) Any other forms/schedules I need to submit? Thx so much!!!

cellis10 · Post by **cellis10** » Tue Apr 08, 2014 12:33 pm

One more thing. Besides the 8891s missing the account value, shoudl I also resubmit ALL the 8891s for which I entered Beneficiary instead of Annuitant?

nelsona · Post by **nelsona** » Tue Apr 08, 2014 12:43 pm

1. correct.
2. Good.
3. No, all the 25% will be eligible. You will have a TON of foreign tax that won't be used.
4. No. Your RRSP inocme will appear on 16a(gross) 16b( taxable) Not on schedule B. It comes from line 7 of your 8891 form

cellis10 · Post by **cellis10** » Tue Apr 08, 2014 1:17 pm

Thx so much nelsona. Just to clarify:
1.) Resubmit ALL 8891s correcting Annuitant or just 8891s missing value?
2.) Submit 3 years (2002, 2009 and 2010) of missing FBARs, now FINCEN114.
3.) Line 7a of 8891 is less 25% withheld by Canada, correct? Same for 16a.
4.) Line 7b of 8891 is difference between value as of Feb 1999 and what I receive when I cash out (after the 25% is withheld), correct?
5.) Form 1116. I see the worksheet for lump sum distributions so will complete that when I cash out. Am I correct that once I figure out my max tax credit, I can carry it over for ten years to use of the remainder?

Thanks so much for all the help. Just excited that I might be on my way to closing this out while the exchange rate is favorable:)

nelsona · Post by **nelsona** » Tue Apr 08, 2014 1:24 pm

1. I already answered that: you are the beneficiary/
2. Forget 2002. Why are your submissions so irregular. You should have ben filing the same forms every year.
3. NO. 7a is the entire value of your cashout BEFORE tax (in USD).
4. 7b is the diiference beteen value in 1999 (In 1999 USDs) and 7a.
5. RRSP is general limit income for 1116 purposes, not lumpsum. Lump sum in that case refers to specific accounts, not RRSP. The carryover will be for 10 years, but you will not likley ever get to use it.

So, assuming you will apy about $35K in Cdn tax, the most you will get to use on 1116 is about $10K. You can see about using it as a foreign tax deduction instead, on schedule A, and forget 1116 and carryforward. I would run the calc both ways to see which is best for 2014.

cellis10 · Post by **cellis10** » Tue Apr 08, 2014 1:41 pm

Sorry, I misread the 8891 beneficiary part.
I will submit 8891s with value, along with my old 1040s for the two missing years. Not sure why I missed those 2 years, but I did. 2002 I submitted and have a copy, but Treasury can't find it.
Per your suggestion, I will run the calc for 1116 and for Schedule A for 2014 reporting (and in each future year too, I assume.)

Anything else I am missing?
Thanks so much nelsona!!

nelsona · Post by **nelsona** » Tue Apr 08, 2014 1:46 pm

Not sure what you mean by future years. Are you taking all your RRSP in 2014? if so, that will be the end of that.

cellis10 · Post by **cellis10** » Tue Apr 08, 2014 2:57 pm

I was planning on cashing out all of it, but perhaps there is a tax benefit of doing it over time, though it seems that would complicate the reporting of the taxable portion. Thoughts?

nelsona · Post by **nelsona** » Tue Apr 08, 2014 3:03 pm

Oh, it is definitely better taxwise to take it over time, but only if you convert it to a RRIF first, and take out 10% a year. That gets you 15% NR tax instead of 25%.

It isn't complicated, you simply pro-rate and spread the taxable and non-taxable portions over the years.

quickcanuck · Post by **quickcanuck** » Fri Jun 06, 2014 7:12 pm

I have previously submitted tax returns and 8891 forms for an RRSP that was a simple savings account, and I have declared the earned interest each year on the 8891 and on Schedule B, and checked off "no" on question 6a regarding deferral. I cashed in the RRSP last year and paid 10% Canadian taxes (the withdrawals were made in stages in amounts of $5K). Am I correct to assume that there is no US tax payable on the redemption - I will list the withdrawal on line 7a and show 7b as zero?

nelsona · Post by **nelsona** » Sat Jun 07, 2014 10:48 am

Yes, however, you withdrew the money incorrectly in Canad, and will owe 15% more tax in Canada. You "forgot" to tell your bank that you were non-resident..

The NR rate is a flat 25%.

quickcanuck · Post by **quickcanuck** » Sat Jun 07, 2014 12:59 pm

I am a Canadian citizen and resident - one of the accidental Americans.

nelsona · Post by **nelsona** » Sat Jun 07, 2014 10:16 pm

Ah, sorry.

In that cxase the Cdn taxation will be calculatd on your tax return. probably more than 25%.