RRIF Withdrawals Taxed by IRS

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jeffp99
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RRIF Withdrawals Taxed by IRS

Post by jeffp99 »

US citizen living in Canada with an RRSP. Just converted RRSP to RRIF and started taking income. I was compliant filing 8891 every year until they stopped being required. I read on this forum that just the growth is taxable on US side and I have a choice to tax all the growth first, last or proportionately.

I have all my records and proper exchange rate conversions for all purchases etc.

I would like to use the proportionate method. Example: MV $10,000 ACB $5000 and withdraw $1500; taxable portion is $750 ($1500/$10000*$5000).

My question is because I’m receiving monthly withdrawals do I have to do this calculation for each monthly withdrawal or can I just add all the withdrawals together and use the market value at the start of the year and do the calculation once at the end of the year? I suppose it won’t be entirely precise this way, but should be fairly close.
nelsona
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Post by nelsona »

For periodic payments, you can use the average exchange rate published at year-end.
For determining the proportion of taxable/non-taxable, use the beginning of year FMV.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
jeffp99
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Post by jeffp99 »

Great thanks!

For the average exchange rate what countries published rate do I use? I went to both the Bank of Canada website and the IRS website and they are different by about 5%.

IRS website says 1.329 and Bank of Canada says 1.2787. This makes quite a bit of difference depending on which one I use. This doesn't make sense to me?
nelsona
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Post by nelsona »

Obviously the IRS would prefer you use the one on their website.

It shouldn't much matter in the long run. Just pick one and stick with it. Your dealing with proportions, so it shouldn't matter.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
lukehiggins
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Post by lukehiggins »

You noted that "I read on this forum that ...I have a choice to tax all the growth first, last or proportionately." Can you guide me to the thread addressing this issue? It had been my plan to take the taxable portion of my RIF first and delay the non-taxable portion to last but have been unable to determine if this was really an option. I've also been trying to find out if the method can be changed once started.
nelsona
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Post by nelsona »

You will never really be able to take the taxable portion first, since it grows every year.

And if you choose to do this you will always mismatch your tax in US and Canada.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
ND
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Post by ND »

"For the average exchange rate what countries published rate do I use? I went to both the Bank of Canada website and the IRS website and they are different by about 5%.

IRS website says 1.329 and Bank of Canada says 1.2787. This makes quite a bit of difference depending on which one I use. This doesn't make sense to me?"

something smells fishy. doesn't sound like you're comparing apples to apples. Can you post links to both country rates that you're looking at?
nelsona
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Post by nelsona »

The principle is that once you start with one method of RRSP reporting, you should stick to it. It's not a rule however.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
jeffp99
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Post by jeffp99 »

Hi ND, please see below.

http://www.bankofcanada.ca/stats/assets ... 015-en.pdf

https://www.irs.gov/individuals/interna ... ange-rates

Am I missing something on this, didn't seem right to me either?
nelsona
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Post by nelsona »

This discrepancy illustrates the costs of converting in US (IRS uses the final net proceeds when dealing with foreign currency).

Just be consistent, using the same rate for the FMV, withdrawal and tax.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
nelsona
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Post by nelsona »

I meant to say use the same "source" for all conversions, the rate may change of course. FMV would be on Jan 1, for example.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
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