Withdrawal of Unused Canadian RRSP Contributions and US Tax

CrossBorderTax · Post by **CrossBorderTax** » Thu Jun 22, 2017 7:41 pm

Greetings:

I am a dual citizen of the US and Canada. My full-time residence and "Tax Home" is Canada. I file my US Taxes yearly and never have to pay (I am a college instructor and make less than the foreign income exclusion level)

During the 2016-2017 year I foolishly contributed much more to my RRSP than I should have. In fact, I contributed so much, that I will have to borrow money for some expenses. However, I have not "used" these contributions for my 2016 taxes and do not plan to use any of them for this year's.

There seem to be two ways of getting my money back.

1. Use form T3012A "Tax Deduction Waiver on the Refund of your Unused RRSP, PRPP, or SPP Contributions from your RRSP". This form requests Revenue Canada to allow my bank to distribute my UNUSED contributions without withholding tax to my regular savings account. I would be given a TRSP at the end of the year noting this special arrangement. My RSP contribution limits wouldn't change. I would simply get my own unused contributions back to use as I please.

2. Withdraw, get hit with taxes, and get most of all of the money back by using the funds as a deduction.

I would like to go with choice #1, the T3012.

I woke up in a cold sweat thinking about how the IRS might interpret my withdrawal of funds, even if they are not "used contributions."

Question #1. Do I need to worry about the IRS taxing me on UNUSED contributions from an RSP using the T3012A?

Question #2. If I am not able to get my T3012 approved and withdraw the funds, take a tax hit, but get the money back in tax deductions in Canada, will the IRS try to bleed me?

Thanks to the experts in advance.

nelsona · Post by **nelsona** » Fri Jun 23, 2017 9:21 am

You should use option 1, since this results in the extraction being non-taxable in Canasa (and this also in US).

Doing it the second way triggers tax in Canada (even though you can then contribute the funds (which would defeat the purpose of the withdrawl), and this would make the withdrawal taxable in US as well.

Sounds like you were pressured by someone to fund your RRSP when you didn't need to.

CrossBorderTax · Post by **CrossBorderTax** » Fri Jun 23, 2017 11:38 am

Hello:

Thank you for the reply. It's true, I was partially pressured by a friend and partially by myself, as I have don't have much saved for retirement and was under the mistaken impression that there would be no tax (or little tax) on retirement like a ROTH IRA in the US.

If the CRA refuses my request on the T3012A, would I be able to withdraw and then get a tax credit in the US on the tax paid in Canada ?(which I would get back if I ended up "using" the contributions)

I hope this makes sense. Thanks again!

nelsona · Post by **nelsona** » Fri Jun 23, 2017 5:34 pm

Why would you withdraw funds, and then recontribute. If you will use the contribution at some point, then just leave it.
Why did you not use the contribution in the first place?

How much yo uwould be taxed in US is dependent only on how much the funds have gained since you deposited them, so this is not much or a worry. Your real worry is the Cdn tax. You don't pay US tax in any event, so all the credit in the world isn't going to benefit you.