calculating taxable portion of RRIF withdrawl

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Nelsona :

I am trying to understand how I would apply the 'non-taxable' portion of my RRIF account when I start making withdrawls.
I have studied the information from your past posts - I have summarized my understanding of the PROPORTIONAL METHOD ;

This doles out the non-taxable portion slowly as I collapse the RRIF over time

The formula you gave for calculating the "taxable" amount of your RRIF withdrawl is
taxable-amt = 16a *[1-(NT/VAL)] where
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)

Example : RRSP was $100 when you arrived in the US and its value is now $200 - you now convert it to a RRIF - and start withdrawls
Year1 : You withdraw $10 - so taxable amount = 10 *[1-(100/200)] = $5 taxable
Year2 : You withdraw $10 - so taxable amount = 10 *[1-( 95/190)] = $5 taxable
Year3 : You withdraw $10 - so taxable amount = 10 *[1-( 90/180)] = $5 taxable
and on-and-on
* Of coarse in reality VAL will hopefully have grown each year - but for this example I am assuming zero growth

I believe you were promoting this methoed because
* it is consistent over time so it would be easy for everyone to understand (IRS, my accountant and myself)
* RRIF withdrawls are taxed at the marginal rate (added to your last $ earned)
The 'non-taxable deduction' will hit the $ in this marginal tax rate - so this is where you want to use this deduction
ie; By using this tax deduction in little chuncks over time - you will be more likely to gain more tax advantage verses applying the deduction all at once

Am I on track here?

thanks

[nelsona]

Yes. Since your Cdn tax will be fixed (at 15% if you use a RRIF, 25% otherwise), I do not see anypoint using the method where you take out the tax-free portion first, since all you will be doing then is building up a HUGE foreign tax carry forward that you will never fuly expend.