Deducting RRSP contributions on US return

[GoronUSA]

Nelson,

Dual citizen living and working in Canada.

When I file my 2009 US return, I will deduct my contributions to my company-sponsored RRSP program from my wages on line 7 of my 1040 and file a 8833 to indicate my deduction. After reading the tech notes on the fifth protocol update to the treaty, I do see that my RRSP contributions are supposed to be capped at the lower of the US-CDN limit. It turns out, however, that the US limit is a few thousand dollars less than my CDN RRSP limit. In the past, this wasn't an issue since I couldn't deduct RRSP contributions from my taxable US income. Now that I can (or am forced?), does this mean I can't contribute up to my max CDN limit since it exceeds the US limit? Or can I still contribute up to the CDN limit, provided that I account for the difference on my US taxable income? If your answer is NO, does this not mean that the fifth protocol has effectively decreased my RRSP contribution amount and my ability to defer taxes on this money?

[nelsona]

Your DEDUCTIBLE RRSP limit will be the lower of your RRSP contribution room, or your 401(k) limit, which for 2009 is $16,500 if under 50 yrs old.

That is the whole point of those protocol atricles; to prevent an unfair advantage over other US taxpayers just because of where you live. The protocol was meant to limit the DEDUCTION

You have a few options available to you of course. You can contribute all you can to your company plan, but only deduct $16.5K. Or, if your company plan has its own limits, you can fund your or your spouse's private RRSP, which is still not deductible.

As an aside, remember too that the contributions for IRS purposes need to be made in the calendar year, as opposed to the Cdn eligibility period which extends 60 days past the end of the year.

[GoronUSA]

When filling out Form 8833 as a result of reducing my Wages by my RRSP contributions (or, in my case, the $16.5K US max), what is the Internal Revenue Code that is overruled in this case (line 2)?

[nelsona]

You don't need to fill in that line. Just describe the treaty benefit you are exercising.

[nelsona]

Remember that it is ONLY employee contributions made AT work THRU your employer's plan that are deductible.

[GoronUSA]

Thanks nelsona. Two more wrinkles I would appreciate your input on:

Let's say that I make 18K in RRSP contributions via payroll deduction in my company's plan but I deduct only 10K from my CDN return. For my US return, I am assuming that I would NOT be able to deduct any more than the 10K (converted to US dollars) off of my wage income?

Next, assume that I decide to put 9K in my account and 9K in my spouse's account (spousal contribution from my limit). For my US return, is there any reason that I would not be able to deduct the spousal amount?

[nelsona]

I'd say wrong on both assumptions:

I see no reason why the entire contribution (upto 16.5K) would NOT be deductible on your 1040, regardless if you chose to deduct it in Canada (the treaty wording has no mention of how the contribution is treated in the home country). In fact, it would ONLY be deductible on that year's 1040 (you can't defer the deduction to a later year in US), so delaying deduction on your Cdn return (which can be useful) has no bearing on your US return.


I do not believe that the spousal amount (even if put in thru employer plan -- if that is even possible) would be deductible on your US return. The treaty limits deductibility to the employee, and identifies the individual as performing services. The tech expalnation solidifies the employer-employee realtionship in this regard.
I would not be making spousal contributions at work with the expectation that these could be deducted on your 1040. Even if she were to file jointly with you, and have her own wages to report, the spousal amount would still not reduce her wage.