RRSP distribution

spoonsphere · Post by **spoonsphere** » Tue Sep 20, 2011 5:54 pm

Hello,

My wife lived and worked in Canada until getting married and moving to the U.S. We both now live in the U.S.

While she was working in Canada, she was contributing to an RRSP account she had there. The account was left in place when she moved to the U.S.

We recently closed her RRSP account and the funds accumulated there were distributed. She was issued a form NR4 for one of the accounts, and some other form for the other account (not sure what, it may be a substitute NR4 or something else), and they collected a 25% tax on the distributions in Canada.

I am unclear how to report this income and taxes collected on our tax return.

Do we report the distribution as income and request a foreign tax credit for taxes paid to Canada?

Any help would be greatly appreciated.

Thanks!

nelsona · Post by **nelsona** » Wed Sep 21, 2011 6:54 am

I have commented on this many times. Please search postings for details. She first needs to fill in a form 8891

spoonsphere · Post by **spoonsphere** » Fri Sep 23, 2011 4:09 pm

Thank you for your response.

Can we just do a form 8891 for this year, or do we need to go back and amend past year returns?

Also, note that she just became a green card holder this year. Up until then, since moving to the U.S., she held a non-immigrant visa (H1B).

Thanks!

nelsona · Post by **nelsona** » Fri Sep 23, 2011 4:23 pm

It would be best to backfile 8891's.
The fact that she lived in US and filed a 1040 makes her equivalent to GC for all those years.

spoonsphere · Post by **spoonsphere** » Fri Sep 23, 2011 4:26 pm

ugh! okay, so we need to locate the yearly statements from her RRSP for the years going back to make that happen to show the anual increase / decrease in value even though there weren't distributions?

Thanks again nelsona!

nelsona · Post by **nelsona** » Fri Sep 23, 2011 4:31 pm

Yes, she needs to file 8891 for trust reasons.
And one of the answers she must give is year-end value in USD.
Its not to show increase/decrease. Its to show year-end value of the trust.
Her US taxability of the RRSP will still be based solely on the arrival book value whan she became a US taxpayer, so THAT is the really important figure that must be ascertained.

dp · Post by dp » Sat Oct 01, 2011 8:44 pm

nelsona,

For the past 20 years I have been living in Canada. Before my retirement, my income was far below the Foreign Earned Income Exclusion limit, i.e. I did not have to pay US tax on my income. However, I used part of that income to purchase an RRSP (e.g. $10000). When I take distribution, is the principle ($10000) also excluded from taxation? If not, doesnâ€™t that mean I have to pay tax on the income that was originally excluded, i.e. my nontaxable income ($10000) in effect has become taxable income?

Thanks.

nelsona · Post by **nelsona** » Mon Oct 03, 2011 10:39 am

As a US citizen, your personl RRSP contributions form the investment in your RRSP, and as such will not be taxable in US when you take RRSP withdrawals.

You need to have kept track of the year-by-year contributions you have made, in then-current USD. It is up to the taxpayer to be able to prove how much of a pension income is non-taxable, or he must report the gross as fully taxable.

spoonsphere · Post by **spoonsphere** » Mon Oct 03, 2011 10:42 am

Just to be clear, contributions made while living in Canada would also form the basis - is that correct?

I think it is best for me to have an accountant prepare our tax return this year. Not sure if this goes against the forum rules, but can someone recommend one? nelsona, are you a tax practitioner?

Thanks!

nelsona · Post by **nelsona** » Mon Oct 03, 2011 10:43 am

Note that for a couple of years now, company sponsored RRSPa ARE tax deductible, so now one can not count employee contributions to such plans as part of the non-taxable investment in the RRSP.

So, now, the non-taxable portion of employer-sponsored RRSPs held by US citizens is frozen at 2008 level.

dp · Post by dp » Mon Oct 03, 2011 12:44 pm

Nelsona,

Thank you for your help. Let me confirm my understanding of your meaning:

So long as my RRSP is an individual retirement savings account, purchased by me alone, directly from the financial institution with which I do business, the principal is nontaxable in the USA when I take the distribution. (Since I have already transferred my RRSP to a RRIF, it should not be taxable from my RRIF either, because the RRIF is the same account as the RRSP, when the latter is in the income-paying mode.)

What documents should I give the IRS to prove the pension is nontaxable? When should I give it to the IRS?

nelsona · Post by **nelsona** » Mon Oct 03, 2011 1:00 pm

Please try to post ONE Thread, preferably your own to ask a question.

Don't repost.