RRSP Cost Basis from Contributions

cfn2007 · Post by **cfn2007** » Sat Mar 14, 2009 8:01 pm

I am a dual citizen that recently returned to Canada. While I was in the US I filed 8891's each year to defer income inside my RRSP.

Now that I'm back in Canada I have resumed RRSP contributions. Is there any way that these contributions can increase my cost basis for the IRS? Would this lead to any advantage of using 1116 vs. 2555 for earned income?

Thanks!

nelsona · Post by **nelsona** » Sun Mar 15, 2009 1:41 pm

As long as these RRSP contributions are not made thru your employer, they are taxable on 1040 and thus increase your non-taxable portion. If the are company plans, then these are not reported as wage income and do not increase your basis.

The treatment is the same whether you use 2555 or 1116, so the decision to use either of those should be based purely on which one yields less US tax.

cfn2007 · Post by **cfn2007** » Sun Mar 15, 2009 10:38 pm

Thanks, that's what I thought. What confuses me is that form 8891 tells me to stop before I enter my contribution for the year. Whenever I fill this out, I have been selecting "Beneficiary" and that "yes" I have previously made this election. Then I'm told to stop with line 8. I'm surprised that they would not want me to report my contributions for the year on line 9 so they could also monitor the contributions???

nelsona · Post by **nelsona** » Mon Mar 16, 2009 9:24 am

It is something that doesn't make sense in the 8891, but it doesn't matter. They don't track your contributions or non-taxable portion: YOU do.

cfn2007 · Post by **cfn2007** » Mon Mar 23, 2009 2:07 pm

On a related matter, last year I moved my RRSP from a mutual fund company to a broker (transferred in-kind). For the purposes of the 8891, is this considered a "distribution" (even through I didn't take any money out)?

I have always filled in lines 7a and 7b as zero; however, it occurs to me that this year maybe I need to fill in the total value that was transferred to the new broker in 7a and put zero for 7b. (Similar to the way a direct rollover IRA would work in the USA.)

nelsona · Post by **nelsona** » Mon Mar 23, 2009 2:17 pm

No. This is simply a transfer. You should submit 2 8891's. One to 'retire' the old account, and a second for the new account.

cfn2007 · Post by **cfn2007** » Mon Mar 23, 2009 2:49 pm

So to retire the old account I'd simply prepare an 8891 that has 7a, 7b, and 8 all with zeros?

For the new account I assume I'd keep line 6b as the year of my first election (2004) and not this year, right?

Thanks.

nelsona · Post by **nelsona** » Mon Mar 23, 2009 3:44 pm

Per the instructions on form 8891, any 'roll-over' account which receives funds from an account on which the election had been made is said to have made the election. That doesn't necessarily mean that the election for that account was made way back then. (Think of an existing account on which the election had never been made which recieves rollover money. Obviously, the election can't be made retroactively)

I interpret this as being "no" you have not previously elected (6a), but "Yes" you must make the election now (6c).

So I would write "no" and check box 6c. As Isaid above, its hard to say that an election was made before the cccount was opened. but the election MUST be made when it receives the roll-over, 2008.

Next year, you would write 'yes' and 2008.

ski-matic · Post by **ski-matic** » Fri Jan 08, 2010 3:11 pm

[quote="nelsona"]It is something that doesn't make sense in the 8891, but it doesn't matter. They don't track your contributions or non-taxable portion: YOU do.[/quote]

If they don't track it, wouldn't it be easy for someone to use incorrect numbers that are to their advantage?

I'm guessing they could ask for the paperwork to prove the numbers you give, and they could check them. Is that something they do regularly?

nelsona · Post by **nelsona** » Fri Jan 08, 2010 3:45 pm

Easy? Sure. Worth the risk? I doubt it.

The only incidents that I've heard about with regrds to IRS and RRSPs is when someone withdraws funds from RRSP and doe not advise IRS at tall that they took funds. Then IRS has gotten them for not only under-reporting income, but also for previous years undeclared internal income AND failure to report existence of account. Pretty much wiped out entire RRSP.