reporting RRSP/RRIF distributions to IRS

eortlund · Post by **eortlund** » Sun Apr 24, 2016 11:22 am

I understand that as an American, contributions are tax-exempt while growth is not. This should be easy to calculate if we collapse the RRSP all at once, however, if it happens in stages or periodic payments, how do we determine what is taxable? Will we have to keep complicated spreadsheets?

rafa02 · Post by **rafa02** » Sun Apr 24, 2016 1:20 pm

Nelsona provided a formula several years ago:

The goal in all this is to determine your taxable income, so the formula is

16b = 16a *[1-(NT/VAL)] where

16b is your taxable amount
16a is your gross withdrawal
NT is your non-taxabale investement in the account
VAL is your value (either that day or previous year-end)

So if you had $100 when you arrived and its value is now $200, and you withdraw $10

16b = 10 *[1-(100/200)] = $5 taxable

Your non-taxable portion was $5, so remember to reduce your NT for the next year by this amount, so $95.

Your NT will become smaller and smaller as time goes by (unless of course you make a non-deductible contribtion, which would add back to your NT).

eortlund · Post by **eortlund** » Sun Apr 24, 2016 3:58 pm

I figured it was probably something complicated like that. Thanks!

rafa02 · Post by **rafa02** » Sun Apr 24, 2016 5:33 pm

It really is not complicated when you step you way through it. I setup the formula in a spreadsheet and it computes the amount automatically every year.

nelsona · Post by **nelsona** » Sun Apr 24, 2016 6:14 pm

It is best to use the Beginning of year value for your RRSP/RRIF (if no other contributions are being made) since that is the basis on which any required (minimum) distribitions from RRIFs are based.

That also allows you to know exactly what your taxable ratio will be regardless of when or how much you take out during the year.

eortlund · Post by **eortlund** » Mon Apr 25, 2016 9:34 am

Thank you!

I am leaning toward collapsing them though, so as to be done with it. Also if our Canadian house doesn't sell before we go, that $ would help us pay house expenses. Can eventually move money into UK pension, which the government tops up 20%. Wouldn't have to invest so conservatively as we would in a RRIF. Wouldn't have to worry about HMRC reporting funds for the UK or reporting RRIF withdrawals every year to the IRS.

If we do attempt section 217 returns, I know we have to do it manually in a departure year? Is it worth it to try our best to hold off on a collapse until 2017? I made about 4000 so far this year and likely nothing in 2017. Spousal RRSP is about 40k.

nelsona · Post by **nelsona** » Mon Apr 25, 2016 10:21 am

I would split it over the two years. I have no idea if the software wil work in your departure year, but, essentially the 90% income calculation is based on the post-departure period, much like for your personal amount credit.

eortlund · Post by **eortlund** » Mon Apr 25, 2016 10:48 am

Would I send in my departure return in 2017, and then send in a separate 217 return? If I split it into two withdrawals, any guesses how much I might get back?

nelsona · Post by **nelsona** » Mon Apr 25, 2016 11:08 am

You would send only one return for any year. You can typically, once you apply all allowable deductions make $15K world income tax-free, and 25% tax on the rest. so if you split it 20-20 and made no other world income would be getting back about $3-4K of the total $5K CRA tax each year.

I don't know what US and UK tax you might owe.

nelsona · Post by **nelsona** » Mon Apr 25, 2016 11:10 am

Didn't you say you were leaving in 2016?

eortlund · Post by **eortlund** » Mon Apr 25, 2016 11:16 am

OK so if I have to do section 217 manually, just include in departure return mailing?

Any opinion on whether it is worth it for my husband to do a section 217 return? RRSP worth 40k as well. Canadian income mid 50k, moving to uk in August where income will be mid-40k (they provide housing).

If no sense in him doing it, we could collapse his in 2016. Then do mine in 2017 and 2018 so as to simplify 217?

eortlund · Post by **eortlund** » Mon Apr 25, 2016 11:21 am

Leaving this August 2016. Thought next Canadian tax return due in 2017.

nelsona · Post by **nelsona** » Mon Apr 25, 2016 11:34 am

so half in the fall, and half in Jan 2017 should do it. take a little less than half this year due to existing income already. I would not wait until 2018 as you don not know what you will be doing then.

217 doesn't work in you make any other income. It will be 25% flat taxed.

eortlund · Post by **eortlund** » Mon Apr 25, 2016 11:45 am

Sounds like a good plan. So then in 2017, do departure return and include a separate 217 return in mailing?

In 2017, take out rest of RRSP and can do an immediate second 217 return or would that be done in 2018?

Good point that I might start working once our family is settled.

nelsona · Post by **nelsona** » Mon Apr 25, 2016 11:51 am

Read what I said: "You would send only one return for any year."