Tracking RRSP contributions

This is our main tax information forum which deals with topics concerning Canadians living and working in the U.S., U.S. citizens contemplating working in Canada, and all aspects of Canadian and U.S. income tax and related adminstrative issues.

Moderator: Mark T Serbinski CA CPA

Post Reply
eortlund
Posts: 272
Joined: Tue Aug 07, 2007 12:18 pm

Tracking RRSP contributions

Post by eortlund » Fri Jul 25, 2014 11:24 am

I've been tracking my husband's RRSP contributions (his and his employer's) as was recommended here several years ago. My understanding was that if we ever leave Canada, we should sell and then buy again our investments before we go to result in less tax later on.

However, I vaguely remember nelsona saying something about this only applying to Canadians. Is it recommended that US citizens do this?

nelsona
Posts: 16589
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona » Fri Jul 25, 2014 11:51 am

For US citizens, crystalization of RRSP gains simply doesn't matter -- in fact it doesn't matter whether they move to US or not either.

Their future RRSP taxability in US is based on the non-deductible contributions they make to their RRSP, which means ALL RRSP contriutions before 2009, and personal (not through employee plans) contributions made thereafter. that is why the tracking needs to be done year by year, with the exchange rate of that time.

All growth is taxable. All deductible contributions are taxable.

Now, if one BECAME a US citizen at some point during their working life, then there would need to be a calculation done at the time they became a US citizen, much like that done at the time a Cdn becomes a US taxpayer, which future contributions would then be added to. Then it would be important for the taxpayer to crystalize before becominga US taxpayer.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

nelsona
Posts: 16589
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona » Fri Jul 25, 2014 11:55 am

So, the only contributions you need to be tracking now are his PERSONAL RRSP contributions made OUTSIDE of work, since those made at work are deductible on his 1040. If he is not making any private RRSP contributions, then he is not building up any non-taxable portion.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

nelsona
Posts: 16589
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona » Fri Jul 25, 2014 11:56 am

I'm assuming he is a US citizen or GC holder, I can't recall your bio.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

eortlund
Posts: 272
Joined: Tue Aug 07, 2007 12:18 pm

Post by eortlund » Fri Jul 25, 2014 12:09 pm

Both of us are Americans and now have Canadian citizenship as well, which I assume doesn't matter for this.

All of his RRSP contributions are through work. However, I have a spousal RRSP with all personal contributions so I guess that's the really important one to track.

When we finally withdraw from these RRSPs, is it tricky to calculate the tax based on what was deductible and what wasn't?

nelsona
Posts: 16589
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona » Fri Jul 25, 2014 12:51 pm

Yes, your spousal contribs are the only ones to track.

It is not that tricky at all.

In your case, the figures (all in USD) you need are:

C= your non-deductible contributions to date (in USD calculted in the years they were made).
BYV = the value of your RRSP On jan 1 of the year
W = Withdrawal you make during that year.

The NON- taxable portion (NT) is:
NT= W * (C/BYV)

The taxable portion (T) is:
T = W-NT

Then, each year you reduce C by the NT portion you claimed, and (not likely) add to C by any non-deductible contribution you may have made

Quick xample:

You have an RRSP worth BYV=$100K on Jan 1, 2020, which you contributed C=$20K over the years, during 2020 you take out W=$10K.
So, your
NT = 10K * (20K/100K) = $2000
T = 10K - 2000 = $8000

For 2021, assuming you don't make a contribution, your
C= $20K -2000 = $18K
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

eortlund
Posts: 272
Joined: Tue Aug 07, 2007 12:18 pm

Post by eortlund » Fri Jul 25, 2014 2:04 pm

Thank you nelsona. I usually save these examples you give to my files for further reference.

But will the tax software be prompting me for these specific values as well?

nelsona
Posts: 16589
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona » Fri Jul 25, 2014 2:20 pm

No. The filling of Form 8891 is completely manual. It asks for gross income (W) and taxable income (T). YOU come up with those figures. That feeds back to your 1040.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

eortlund
Posts: 272
Joined: Tue Aug 07, 2007 12:18 pm

Post by eortlund » Fri Jul 25, 2014 2:28 pm

Alright, well then I'll definitely be saving your example!

eortlund
Posts: 272
Joined: Tue Aug 07, 2007 12:18 pm

Post by eortlund » Fri Jul 25, 2014 3:37 pm

I was thinking about this further, certain RRSP contributions being considered deductible. Because we never claim any RRSP deductions from the IRS now, I don't think it would even change anything because we always owe $0. So it's almost like we don't ever benefit from certain contributions being deductible?

nelsona
Posts: 16589
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona » Fri Jul 25, 2014 4:34 pm

Its up for some debate whether the portion that your husband contributes at work, but does not claim on his 1040 is considered "non-deductible".

If he were Cdn, that would definitely be the case, but the rule that makes his contributions taxable may apply specificically to non-US citizens, I would have to dig on this. 72(w) is one of the IRC clauses that applies. the Old Rev Proc which governed this mentions after-US-tax earnings. Since the contributions should not be included in his US income, they should nott be considered as after-tax, in my opinion. Only private RRSP contributions qualify as after tax..

But, certainly, the employer's contributions, as well as the growth WILL be taxable in US.

Remember though, barring a cataclysmic change in the tax structure of both countries, the Cdn tax that he will pay on his RRSP withdrawals will ALWAYS outstrip any US tax that he might owe on those withdrawals, and he will get to use the Cdn tax as a credit . This would be true regardless of where he lives at the time of withdrawal.

Like I said, there could be some debate on this, and it has only been 4-5 years that the concept of deductibility of RRSP contributions has been around.

But there is plenty of IRS examples that indicate that if something was deductible and the taxpayer did not or could not deduct it, the IRS doesn't accept that it was not dedcutible.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

eortlund
Posts: 272
Joined: Tue Aug 07, 2007 12:18 pm

Post by eortlund » Fri Jul 25, 2014 8:47 pm

Thank you for that. Yes, I was also wondering what difference it would make in terms of what we actually owe, after taking foreign tax credits for what we pay to the CRA. In the same way, will our excess foreign tax credits ever benefit us? But I think I'll just track both of our RRSPs, it doesn't take much time, and things may change.

I've been tracking "income reinvested" that RBC puts back into the RRSP, but would this count as a contribution? I'm thinking not.

nelsona
Posts: 16589
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona » Sat Jul 26, 2014 8:19 am

that is growth
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

eortlund
Posts: 272
Joined: Tue Aug 07, 2007 12:18 pm

Post by eortlund » Sat Jul 26, 2014 11:35 am

Got it.

Post Reply