RRSP early withdrawal for US resident tax filing

liyang · Post by **liyang** » Mon Jun 01, 2015 5:48 pm

There's so much information for this topic. And I hope someone don't mind answering this for me. I've been working and filing US tax returns since 2000 but without 8891 amendment. If I decided to withdraw RRSP now (not retirement age yet), do I need to file both US and Canadian tax return for year 2015?

Thanks.. Liyang

nelsona · Post by **nelsona** » Tue Jun 02, 2015 9:43 am

For canada, the tax on RRSP is 25% flat tax. No retunr to be filed.

For US, you need to report the GROWTH since arrival in US as taxable. The Cdn tax can be used as a credit against the US tax.

I won't go into anymore detail on that topic since you are coming to the table well past due. Where have you been hiding?

But I will say that since you have not fulfilled any of the foreign reporting mechanisms, FBAR, FATCA, etc, you may need to get caught up with this, likley paying some tax, interst, and penalties.

liyang · Post by **liyang** » Tue Jun 02, 2015 10:48 am

Thanks Nelson for answering my questions. I read a lot of your replies in other posts and I'm surprised you're not a pro.

Anyway I was young when I left and didn't care much I guess. But I did file return for both Canada and US for year 2000. I'm in CA for the whole course. But from reading the new IRS rules, starting 2014, 8891 is not required anymore. Anyone who didn't file 8891 is pardoned. As I did not contribute or withdraw any amount to my RRSP, is it still possible having complication with IRS?

Thanks.. Liyang

nelsona · Post by **nelsona** » Tue Jun 02, 2015 11:12 am

Since you lived in Califormia, do you realize that your RRSP was fully taxable every year there, so you have problems there too?

You need to see an accountant.

liyang · Post by **liyang** » Wed Jun 03, 2015 11:34 am

Nelson,

I did some more research from both federal and state tax standpoints.

From federal I do not need to file 8938 as I don't have that much. For FBAR there's an exception for "tax-qualified retirement plan". So I think I am ok with that too.

From CA state it's a bit vague. My argument is that my RRSP account is mutual fund based and never realized. In that sense I do not owe tax to the state. Does it make sense?

Thanks..

nelsona · Post by **nelsona** » Wed Jun 03, 2015 12:01 pm

Incorrect. RRSPs are not considered "tax-qualified" for IRS purposes (that is why all these regulations had to be invoked in the first place) and are thus subject to FBAR. Even the Rev Proc which obsoleted 8891 says this.

Please understand that you are not the first to ask about these. ALL Cdn accounts must be included on FBAR if the total assets in these accounts is ever more than us$10k during a year. No point doing "research" for any loop-holes.

And California has made it clear that RRSPs are NOT sheltered, so even the smallest dividend or distribution internal to your RRSP is reportable, as well as any cap gains from internal trades. Nothing vague about it.

Your failure to do something over the last 15 years is now catching up with you.

Sorry.

The only thing that has changed is that you do not have to retroactively file 8891 for the past 6 years, nor going forward, to shelter your RRSP for IRS purposes, assuming you meet all the criteria under section 4.01 of the Rev Proc 2014-55. That is good news for you indeed, but doesn't take care of all your problems, which from your posts would be (a) FBAR catch-up, and (b) cali tax.