reporting RRSP/RRIF distributions to IRS
Moderator: Mark T Serbinski CA CPA
reporting RRSP/RRIF distributions to IRS
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?
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).
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).
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.
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.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
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.
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.
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.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
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.
I don't know what US and UK tax you might owe.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
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?
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?
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.
217 doesn't work in you make any other income. It will be 25% flat taxed.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing