RRSPs in the USA

The RRSP problem

The Canadian version of an IRA is called an RRSP. When Canadians move across the border they think it automatically gets treated like an IRA even though they’re living here. They are wrong. The IRS thinks the RRSP generates taxable income for you now, not later when you retire and take a distribution. The IRS says there are multiple forms to file and you face $10k penalties per year if you don’t do them.

Most Canadians are unaware of this, and years after they come to the USA they wake up and get scared. The only way the IRS lets you fix this is by filing a special request for a specific ruling from the government — called a Private Letter Ruling — by which the government agrees to bend the rules for you and you alone.

I wrote a book about this, titled “RRSPs in the USA.” The book tells you possibly more than you want to know about U.S. tax law, and why it creates tax problems for Canadians with RRSPs.

This book describes how to prepare Form 8891, which will ward off tax troubles with no additional magic required. If you’re a tiny bit late (less than six months is “tiny”), I tell you how to prepare an amended tax return and file a late Form 8891.

If you’re really late, you have to do a Private Letter Ruling request and ask the IRS for permission to fix your filing problems with your RRSP. This is expensive (the IRS requires a $2,000 “user fee” to ask for this relief) and problematic.

There are related things to watch out for. Chief among them is the notorious Form TD F 90-22.1, the “FBAR” form. If you didn’t report your RRSP on Form 8891, you probably left it off the FBAR filing form. I show you how to prepare this form, and talk about the late-filing problem. Frankly, the IRS has gotten a bit too good with its negative publicity–the scaremongering and penalty-throwing rhetoric for FBAR penalties has scared people into inaction. Anyway. The book talks about this topic, too.

Table of Contents

Here is the table of contents for the book.

Chapter 1. Overview

Chapter 2. U.S. Taxation of RRSP Investment Earnings
2.1 USA: tax RRSP investment earnings now
2.2 Canada: tax RRSP investment earnings later
2.3 Tax me now + tax me later
2.4 The solution to double taxation
2.5 Mismatch problem remains for State income tax

Chapter 3. U.S. Taxation of Contributions to RRSPs
3.1 You do not reduce your U.S. taxable income
3.2 Your RRSP investment earnings will become partially taxable

Chapter 4. RRSP Distributions to Canadians Living in the U.S.
4.1 Canadian taxation of RRSP distributions
4.2 U.S. taxation of RRSP distributions

Chapter 5. RRSP Rollovers
5.1 RRSP to IRA rollovers not allowed
5.2 Rollover from RRSP to RRIF is tax-free

Chapter 6. How to file Form 8891 for 2011
6.1 Form 8891, Lines 1 through 5
6.2 Form 8891, Line 6: the treaty election
6.3 Form 8891, Line 7
6.4 Form 8891, Line 7a
6.5 Form 8891, Line 7b
6.6 Form 8891, Line 8
6.7 Stop here if you made the treaty election
6.8 Form 8891, Line 9
6.9 Form 8891, Line 10
6.10 Multiple RRSPs
6.11 File Form 8891 with your income tax return

Chapter 7. How to file a late 2011 Form 8891 if you are quick
7.1 Form 8891: only valid when filed with a timely tax return
7.2 Automatic waiver until October 15, 2012 to fix 2011’s problems
7.3 Action plan

Chapter 8. Fixing Form 8891 problems for 2010 and before
8.1 “How far back do I go for what?”
8.2 The unreported income problem
8.3 Fix late Form 8891 problems with a Private Letter Ruling
8.4 Who is eligible to get a Private Letter Ruling
8.5 General procedures for a Private Letter Ruling
8.6 Throw your accountant under the bus
8.7 What “win” looks like
8.8 What you do after the letter ruling is issued

Chapter 9. Form TD F 90-22.1 and your RRSP
9.1 Paperwork requirement
9.2 Penalties
9.3 An RRSP must be reported
9.4 Start with Form 1040, Schedule B
9.5 Form TD F 90-22.1 Generally
9.6 Form TD F 90-22.1, Part II (Lines 15 through 23): all about your RRSP
9.7 Form TD F 90-22.1: sign, date, and file
9.8 Other accounts?
9.9 Fixing the unfiled Form TD F 90-22.1 problem

Chapter 10. Form 8938 and RRSPs

Appendix: Source Materials
Internal Revenue Code Section 72(w)
Notice 96-31, 1996-1 C.B. 378
Rev. Proc. 89-45
Notice 2003-25, 2003-1 I.R.B. 855
Revenue Procedure 2002-23, 2002-15 I.R.B. 744
Notice 2003-57, 2003-34 I.R.B. 397
Notice 2003-75, 2003-50 I.R.B. 1204
Treasury Regulations Section 301.9100-1
Treasury Regulations Section 301.9100-2
Treasury Regulations Section 301.9100-3
Example of Private Letter Ruling
Revenue Ruling 89-95, 1989-2 C.B. 131
Private Letter Ruling 9833020

Franchise Tax Board Information Letter No. 2003-0040
Form TD F 90-22.1 (January, 2012 Revision)
Form 8891

Buy the book

Buy this book if you want to do your RRSP filings right, or if you want to know what to do about fixing prior year problems. It is easy to read, mostly non-technical, and I have provided all of the underlying legal documents that matter. You don’t have to go searching all over the internet for stuff.