# Reporting RRSP Income to IRS



## omater2

I am sorry if this has been posted before, but I have been through pages and pages and I can't find a solid answer. I live in Canada and received a T4RSP (Statement of RRSP Income). It shows the withdrawal and it shows the amount of Canadian taxes deducted. I am not sure how this should be reported to the IRS since it is the first time I ever took such a draw. So many forms, my aching head!

Thank you for any assistance or direction on this!


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## iota2014

1. As it's Canadian source income, paid to a Canadian resident, Canada has primary taxing rights.

2. The pension article in the treaty only seems to let the US take a bite in cross-border situations (e.g. when Canada source pension income is paid to a US resident). And the pension article is protected from the Saving Clause.

3. If it was me, I would treat it as exempt by treaty and exclude it from gross income, i.e. not report it.

4. Alternatively, instead of treating it as exempt by treaty, you could report it on the 1040 as tax-free.


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## Moulard

In late 2014 the treatment of RRSPs changed.

According to Pub 597 and Rev. Proc. 2014-55 

Generally, income that accrues in certain Canadian retirement plans (including RRSPs or RRIFs) is currently subject to U.S. tax, even if it is not distributed. However, a U.S. citizen or resident can elect to defer U.S. tax on income accrued in the plan until the income is distributed.

Distributions received by any beneficiary or annuitant from a Canadian retirement 
plan, including the portion thereof that constitutes income that has accrued in the plan 
and has not previously been taxed in the United States, must be included in gross 
income by the beneficiary or annuitant in the manner provided under section 72, subject 
to any applicable provision of the Convention

The election, I think has to do with that fact that prior to the change in rules RRSPs were taxed on the way in, but post these changes they are taxed on distribution.


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## iota2014

A bit of googling brings up a long and dispirited article by Phil Hodgen on this subject.
https://hodgen.com/the-ultimate-rrsp-and-the-irs-essay/

Hodgen says the distribution income is 15% US taxable, apparently interpreting "US resident" as "US taxpayer", which thus, for a Canada-resident USC, turns a non-cross-border situation into a cross-border situation. I think.

But most of his piece is about the terms of the deferral, and how a person can possibly be expected to figure out whether they are or are not "eligible" for this apparently impenetrable monkey puzzle the IRS seems to have dreamed up.


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## omater2

I appreciate the replies, thank you. It still boggles the mind. I paid 20% tax to Canada, so I have to pay another 15% to the USA? Makes the retirement account a bad idea to defer taxes to 35% at the end, doesn't it?

The Hodgen essay is clear on how broken the system is, but I am still not clear on if I should be taxed or not. I hate to have to pay an accountant on top of a possible 35%. This is insane! I can usually pull a tax return with no problem, but the IRS code has gotten to be impossible.


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## Nononymous

If you're living in Canada, don't report the thing. The IRS will never figure it out.

If you feel compelled to file a US return, file something that nets out to zero. Don't send money south of the border.


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## iota2014

omater2 said:


> I appreciate the replies, thank you. It still boggles the mind. I paid 20% tax to Canada, so I have to pay another 15% to the USA? Makes the retirement account a bad idea to defer taxes to 35% at the end, doesn't it?
> 
> The Hodgen essay is clear on how broken the system is, but I am still not clear on if I should be taxed or not. I hate to have to pay an accountant on top of a possible 35%. This is insane! I can usually pull a tax return with no problem, but the IRS code has gotten to be impossible.


Yes CBT is insane. Also largely unenforceable, fortunately. If you treat the distribution as exempt by treaty and exclude it from gross income they're unlikely to know or care. NB if you choose this option you *don't* file 8833. Reporting of pension-related treaty positions is waived by statute.


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## Nononymous

Note also that RRSP accounts are exempt from FATCA reporting, so as long as you're not reporting them on an FBAR (or that 8833 form if that's what it is - I have no idea) then the IRS will not know about them.


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## Moulard

omater2 said:


> I appreciate the replies, thank you. It still boggles the mind. I paid 20% tax to Canada, so I have to pay another 15% to the USA? Makes the retirement account a bad idea to defer taxes to 35% at the end, doesn't it?


I don't know enough (read anything) about the laws behind these savings plans to be sure, but technically if you were in fact liable for the taxes, you would be able to take a tax credit for that 20%, which would offset that 15% entirely.


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## iota2014

Moulard said:


> I don't know enough (read anything) about the laws behind these savings plans to be sure, but technically if you were in fact liable for the taxes, you would be able to take a tax credit for that 20%, which would offset that 15% entirely.


Yep. Another unreal solution to an unreal problem. The result is the same: the distribution is taxed by Canada, which is the country of source and the country of residence, and not taxed by the US which has absolutely nothing to do with it.

America can't double-tax its non-US-resident citizens' retirement pensions but pretends that it can. To square the circle and uphold the pretence, unreal credits are granted to offset unreal debts, unreal exemptions are claimed and allowed, hours are wasted puzzling over the exact percentage of tax that should be claimed but not collected.

It's a mess. Renounce or ignore or join in the pretence.


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## omater2

Wow! I had to leave the country for a few weeks and I appreciate the responses that have been made here. I will admit that I am still a little confused. RRSP's are exempt from FATCA reporting? I am pretty sure they were reported last year, so wouldn't there be some type of flag if I don't report this RRSP distribution?


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## Vangrrl

Nononymous said:


> Note also that RRSP accounts are exempt from FATCA reporting, so as long as you're not reporting them on an FBAR (or that 8833 form if that's what it is - I have no idea) then the IRS will not know about them.


That 888-whatever form has been discontinued. I remember looking for it last year.

I hadn't realized RRSP's (also TFSA's) are now exempt from FATCA (this is why I visit this site every year at tax time!). 

Pulled this list from the Canadian Banks of Canada website:

The following registered plans are exempt from reporting:

Registered Retirement Savings Plans (RRSPs)
Tax Free Savings Accounts (TFSAs)
Registered Disability Savings Plans (RDSPs)
Registered Pension Plans (RPPs)
Registered Retirement Income Funds (RRIFs)
Pooled Registered Pension Plans (PRPPs)
Registered Education Savings Plans (RESPs)
AgriInvest Accounts
Deferred Profit-Sharing Plans (DPSPs)


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## Vangrrl

omater2 said:


> I appreciate the replies, thank you. It still boggles the mind. I paid 20% tax to Canada, so I have to pay another 15% to the USA? Makes the retirement account a bad idea to defer taxes to 35% at the end, doesn't it?
> 
> The Hodgen essay is clear on how broken the system is, but I am still not clear on if I should be taxed or not. I hate to have to pay an accountant on top of a possible 35%. This is insane! I can usually pull a tax return with no problem, but the IRS code has gotten to be impossible.


I don't draw from RRSPs but I have dividend which I report and then if it results in any taxes then I claim my Canadian taxes paid to offset the US amount. You would never pay US taxes in addition to Canadian taxes, especially when the Canadian taxes are higher than the US rate. 

Do you do your taxes yourself? I just use TaxAct online and just having a peek at the income categories listed - I think a RRSP draw would be equivalent to a IRA draw and you would just fill out that little section (I think its a 1099 form in the US). 

Or.... you just don't report it


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## omater2

Vangrrl said:


> That 888-whatever form has been discontinued. I remember looking for it last year.
> 
> I hadn't realized RRSP's (also TFSA's) are now exempt from FATCA (this is why I visit this site every year at tax time!).
> 
> Pulled this list from the Canadian Banks of Canada website:
> 
> The following registered plans are exempt from reporting:
> 
> Registered Retirement Savings Plans (RRSPs)
> Tax Free Savings Accounts (TFSAs)
> Registered Disability Savings Plans (RDSPs)
> Registered Pension Plans (RPPs)
> Registered Retirement Income Funds (RRIFs)
> Pooled Registered Pension Plans (PRPPs)
> Registered Education Savings Plans (RESPs)
> AgriInvest Accounts
> Deferred Profit-Sharing Plans (DPSPs)


Thanks for the reply Vangrrl! Great info! I had not realized those had become exempt from reporting either!

As for form 8838, I think you might be confusing it with 8891, which was discontinued, but form 8838 is the newer form.


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