RPP Contributions

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sabad66
Posts: 3
Joined: Wed May 21, 2014 1:37 am

RPP Contributions

Post by sabad66 »

Hi All,
I am a dual US/Canada citizen that has lived in Canada my whole life (and have never filed US taxes), and I am looking to get caught up using the streamlined process.

My 2010 return was pretty straight forward as I was a student and was able to exclude my income using the FEIE.

I started a professional job in 2011, and wanted to try running with the FTC instead of excluding so that I can get the hang of it for 2012/2013 (when I made more money than the limit).

Unfortunately I have come across something that has stumped me... how do I treat my work RPP contributions? It is a DC plan (for now), and I had about 1600 of my own money in contributions. I know in Canada they adjust your gross income by the RPP contribution to give you a net income... is there anything similar in the US?

Any idea how to treat the Canadian RPP contributions? (In case it matters, I didn't open an RRSP until 2013)

Thanks in advance for any help you can provide me!
nelsona
Posts: 16947
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

First off, I wouldn't worry too much about switching from 2555 to 1116, for several reasons:
1. You won't be taxable in US in any event, so why bother.
2. 2555 applies only to wages, so you get to flex your 1116 muscles on all your other income.
3. if your wages exceed the 2555 limit, you use 1116 on the surplus.
4. Once you switch from 2555 to 1116 on eligible wages, you must ask permission from IRS to switch back.

So, don't switch just for "the hang of it". Use 2555 until it is no longer workable, which may be never.

As to YOUR RPP (not RRSP) contributions, you have a choice (and this choice is only available to some countries through tax treaties, including canada's):
You could :
(a) deduct them from your wages (you would do this yourself on line 7, allowwed by treaty).
OR
(b) include them in your wages on line 7 (ie. do nothing about your contributions)

it would make no difference to you taxwise now, but, if you were ever to choose to move to US, especially mid-career, and thus have a mixture of US and cdn incomes at retirement, there may be advantage to doing (b), as you would then be building up a non-taxable portion of your pension (for US tax purposes).
You would need to track your RPP contributions carefully, as while the distributions will be fully taxable in canada, these undeducted contributions would be eventaully withdrawn tax-free in US. This would not include any employer contributions, nor any growth in the plan. The tax savings would not be enormous, but could reduce slightly the US tax in your Cdn pension income.

so THAT might be something I would do for the hang of it.


If you choose (a), all future withdrawals from your pension wioll be taxable in US (and canada of course). this is the simplest route which most people take.

Remember, regardless, that your RPP is currently a foreign asset subject to reporting on form 8938. But it does not require 3520 reporting in my opinion.
I am taking my usual break from this site until May. Always too many tax-form specific questions at this time of year...
nelsona non grata. Non pro. Search previous posts. Happy Browsing :D
sabad66
Posts: 3
Joined: Wed May 21, 2014 1:37 am

Post by sabad66 »

thank you nelsona! I think I will go with B for now then to keep it simple.

Regarding 8938 reporting, I believe I am off the hook since it isn't anywhere near 200k in value (unmarried taxpayer with foreign tax home)... unless I interpreted the instructions wrong?
fangle
Posts: 13
Joined: Tue Feb 18, 2014 1:00 pm

Re: RPP Contributions

Post by fangle »

I posted a thread earlier with my questions about how to report Canadian RPP contributions to IRS on 1040 and elsewhere, but found this thread from 2014 where nelsona addresses most of my questions: RPP does not require 3520; contributions can either be deducted from income on 1040 or not. I am still not certain if an RPP causes one to say yes to the foreign trust question on Schedule B, Part III.

However, I am now curious about the less common strategy of not deducting Canadian RPP contributions from reported 1040 Line 7 income. How does one eventually withdraw the undeducted contributions tax-free in the US? Does this work even if no US tax is paid now due to FEIE 2555? Does this rely on treaty and what does one cite? And would an average cross border tax preparer know how to help me do it?

I am curious because unlike the OP in this thread I did work in the US and have a 401k of approx 200k (I did not get the memo to convert to a Roth IRA before leaving the US since a health emergency precipitated my move back to Canada. And then there's the double-whammy of not being able to afford the US reporting required to hold a TFSA as well.)

So If I continue to contribute to an RPP for the next 20 odd years--here's hoping-- are there scenarios where this would this potentially help me (or at least not hurt me)?
nelsona
Posts: 16947
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: RPP Contributions

Post by nelsona »

There is the *slightest* advantage of not claiming RPP deductions as deduction in US, in the event you return to US to live.

While working in canada, there really is no difference. You won't save any US taxes, since you won't need to pay taxes in US.

If, after you retire, you move back to US, you can claim the unclaimed contributions (only that) as non-taxable investment in your RPP.
Each year you withdraw funds, you would claim the non-taxable portion by prorating your total non-taxable portion over the total value of your RPP. You need to know this RPP value however, so that can be troublesome.
Since you will be paying 15% Cdn tax on this entire withdrawal, it is *possible* that you would be able to save a little US tax when filing your 1116 form, if you otherwise would not use up all your Cdn tax as a credit.
I am taking my usual break from this site until May. Always too many tax-form specific questions at this time of year...
nelsona non grata. Non pro. Search previous posts. Happy Browsing :D
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