Move to US with CCP, RRSP and Stocks

sdodson · Post by **sdodson** » Wed Dec 04, 2013 7:33 pm

My Father-in-law is from Canada and moved to the US in 2008.

He has quite a balance in a CPP and RRSPs.

He also has some stocks that will vest (but he already knows how much tax in Canada he will owe from his exit return)

Questions:

1. Since he cannot rollover his RRSP or CPP to an IRA, he will have to start taking some out. Is that a minimum he will have to start? When? In the US there are IRA required distributions at 70 1/2.

2. I understand he will pay 15% tax in Canada on RRSP distributions and take a tax credit on his US return...right?

3. He plans on retiring in 2018 so he will have 10 yrs for SSb in the USA...will he get the CPP, OAS and SSb in full or will there be some reductions applied to any of them.

Thank you in advance.

nelsona · Post by **nelsona** » Thu Dec 05, 2013 9:45 am

I presume you meant RPP (CPP is canada pension which is paid monthly by gov't -- it is not an account). Please clarify, they are quite different.

1. His RPP will come out per the terms of his pension. His RRSP should be converted to a RRIF. Then he can start taking payments anytime, but required withdrawals at 72.

2. 15% would be the withhoding on RRFI and RPP, not RRSP, which would be 25%. Thus the need to convert RRSP to RRIF. The atx will be credited on his 1040, using form 1116. By the way there will be no Cdn tax on his CPP or OAS. That will be taxed only in US.

3. He will get reduced SS, for 2 reasons: 1. He will only have worked in US 10 years, so that is not much for SS purpose. 2. Because he also worked in Canada, his SS will be reduced becuase of his CPP and RPP. He will only get full OAS if he left canada at age 59 (in 2008). Otherwise subtract 1/40th of the monthly maximum for each year below age 59 when he left. He will get all the CPP he is entitled to.

So, while he won't get much SS, it is good for him to try to qualify for 40 quarters as this will ensure he gets Medicare.

It might be better if HE was the one asking/answering these questions.

sunnylight · Post by **sunnylight** » Thu Dec 05, 2013 1:40 pm

For RRSP foreign tax credit Form 1116, which category of income should be choosen: General Category Income or Lump-sum Distribution?

nelsona · Post by **nelsona** » Thu Dec 05, 2013 7:33 pm

General limit. Lump-sum refers to specific types of pension accounts, which RRSPs do not meet the definition.

sunnylight · Post by **sunnylight** » Thu Dec 05, 2013 8:05 pm

How about the exchange rate?

For 1116, 8891 and 1040 line 16a/b, foreign tax credit and distribution and income, using the distribution date exchange rate?

TD F & 8938, Year End rate?

Quite confused on that, please clarify.

Thanks.

nelsona · Post by **nelsona** » Fri Dec 06, 2013 11:54 am

IRS wants all TRANSACTIONS converted at the time they occur. If you have several transactions during the year, you can use a published average, but the prefer it be done per transaction.

When a form asks for a Year-end value, then that is based on a published exchange rate on Dec 31.

Curious to know how you are calculating your 1040 line 16(b) figure (which comes from 8891 Line 7(B)?

sunnylight · Post by **sunnylight** » Fri Dec 06, 2013 2:32 pm

Yes, 8891 line 7(B) and 1040 16 (a) , (b), and 1116 foreign source income and tax paid amount.

So you mean these numbers I should use transaction date to convert (if only one transaction)?

But for TD F and 8938, using year end published rate?

nelsona · Post by **nelsona** » Fri Dec 06, 2013 3:04 pm

I didn't "maen" that, I actually "said" exactly that.

You didn't answer my quaestion on how you will determine line 7(B).

sunnylight · Post by **sunnylight** » Fri Dec 06, 2013 4:42 pm

Withdraw amount is the number, please correct if I am wrong.

nelsona · Post by **nelsona** » Mon Dec 09, 2013 11:02 am

No.

Since you owned your RRSP before you eacame a US taxpayer, the value it had before you moved is the not taxable in US.

sunnylight · Post by **sunnylight** » Mon Dec 09, 2013 1:08 pm

Oh yes, I missed that point. But I didn't keep the value record when moving in, may I just use the total distribution amount as taxable income (yes, it is over reported) for simple?

At the same time, I want to use the total distribution amount as foreign source income , total paid CRA tax as foreign tax credit purpose in Form 1116.

Please advice whether it is fine or I must use moving value?

nelsona · Post by **nelsona** » Mon Dec 09, 2013 1:42 pm

This is usually not a good idea, since the RRSP income wil be taxed at your marginal rate, but the credit will be given at your average rate.

You need to try and figure out what your arrival value was. Surely you have kept some records, even wjhen you filed your 8891's over the years.

sunnylight · Post by **sunnylight** » Mon Dec 09, 2013 2:07 pm

Thanks Nelsona, yes not good idea, and cannot take full credit... Sad...

However I don't think I could use the first year 8891 value (back filed) since it was more than the moving date value. At meantime, I cannot support or estimate which value I could use, so decide to report all. Not good idea but still acceptable as long as paying the tax to Uncle Sam?

nelsona · Post by **nelsona** » Mon Dec 09, 2013 3:16 pm

That is too bad, it will make your RRSP withdrawal quite expensive in temrs of taxation. 25% to canada, ~15% to IRS, and whatever your state tax is.