Income from a Canadian R.R.I.F - 8621 - 8891 - TDF 90-22.1 -

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QUESTION:I would like to put some money away for retirement. I'm a U.S. citizen living in Canada for the near future, but I know I'll be living in the U.S. again before I retire. Should I put my money in an RRSP or an IRA?

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david ingram replies;

This would be a great question for the Sunday morning radio program onCKBD 600AM  from 9:00 AM to 10:30 AM.

The answer,though, is that you would likely be better putting after taxdollars down on your mortgage if you have one.  Other than that, youcan only buy an RRSP for a tax deduction.  Of course, you then have tomake sure that you fill in forms TDF 90-22.1 and 8891 as follows:

The following question deals with a US resident but you have to fillin the same forms living in Canada - failure to file them can mean bigbig big penalties.

TDF 90 rules here

I am a Canadian citizen and legal US resident. I've lived inFlorida for 25 years and now, at 65, I'm considering takingdistributions from a spousal RRSP with Royal Bank.

 

Unfortunately, income tax information I've received fromdifferent sources is terribly conflicting and, at worst, indicates thatmy nest egg will be gobbled up by governments. Is this something youcan steer me straight on?

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david ingram replies:

If you roll the RRSP into an RRIF (Registered retirement investmentFund), The payer will have to deduct 15% non resident withholding taxunder the terms of Article XVIII of the US . Canada Income TaxConvention (Treaty).

You will then report it again on form 8891 of your 1040 and there mayor may not be US tax to pay.  If your income is high enough that youarein a federal 28% tax rate, there 'will' be tax to pay on the RRIF. 


You will claim the 15% tax paid to Canada on US form 1116.
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Now, you have been supposed to report the existence of that account tothe Department of the Treasury in Detroit on form TDF 90-22.1since 1989 when that law was passed and shown in bulletin 89-45. Failure to report can be a penalty of a minimum of $10,000 to a maximumof $500,000 PLUS up to 5 years in jail for each year you did not reportit.  See the bottom question on schedule B of your 1040 where yourforeign trust requires the preparing and filing of a 3520.

Thankfully, you do NOT have to do a 3520.  the 8891 takes it place andis much easier.

The penalty for not also reporting the RRSP and its internal earningsto the IRS (it was the Dept of Treasury above)  is 35% of theprincipal plus 5% for each year it was not reported since 1989 when thereporting rules started.  The form 8891 is an exemption for paying thetax on those internal earnings.

See form 8891 at:  http://www.irs.gov/pub/irs-pdf/f8891.pdf

RELIEF

Although I know of over 1,000 people who have paid $10,000 fines fornot filing form TDF 90-22.1, I (at this time) do not know personally ofa single individual who has been fined under the 8891 / 3520 rules.  Ialso have NEVER seen a person fined for filing the TDF 90-22.1 formslate and voluntarily.

In my opinion, you should file the TDF 90-22.1 forms retroactively forsix years.to the Department of the Treasury.

See Form TDF 90-22.1 at http://www.irs.gov/pub/irs-pdf/f90221.pdfNote the penalty of up to $500,000 plus five years injail for failure to file.  The minimum fine is now $10,000.
 
You should file retroactive 8891 forms with a 1040X to the IRS for thesame years.  Note that you are the BENEFICIARY so follow theBeneficiary rules.  The 8891 form is actually only 3 years old.  Beforethat, you just wrote out the information on a free form page but it isa convenient form to use retroactively.

Hope this helps and we would be glad to assist if needed.


If you are in the lower mainland,this will be of interest

Every Thursday at 12 noon and 7 PM, FredSnyder of Dundeee Wealth Management
presents free Financial Seminars for his clients, potential clients andanyone who phones and asks to attend.

THERE is NO CHARGE!  (I used to charge up to $999.00 foressentially the same thing)
AND - NO ONE'S ARM IS TWISTED TO BUY SOMETHING.

They are presented at the Dundee Boardroom (holds about 30 people max)

1764 West 7th
Vancouver, BC

phone (604) 731-8900 - ask for Freda to register for free.

These are genuine educational seminars dealing with everything from howto buy a house to making your mortgage tax deductible to buying an RRSPto alternatives to RRSP accounts to estate planning.  What started as13 separate seminars has now evolved into 23 separate topics.

IT IS NOT UNUSUAL FOR PEOPLE TO COME TO ALL OF THEM.
ONE LADY CAME TO 53 separate seminars and her husband came to about 20with her.

If you have a financial consultant, bring them.  People have broughttheir bankers and life insurance agents with them.

Take your spouse, your best friend, your son, your daughter, yourmother or your worst enemy But do phone 604-731-8900

Fred Snyder  also is thehost of ITS YOUR MONEY every Sunday morning on CKBD 600AM  (600on AMdial)  from 9:00 to 10:30.  This is a phone in financial show which Iappear as a guest on most Sundays (when I get up).  (Originally Iwas the co-host but the program is really devoted to BC financesbecause of BC Securities Legislation and my practice is world wide.) You can listen to 4 weeks back at www.600am.com and listen to theprogram live around the world every Sunday morning at the same spot. We have taken calls from around the world.  In one case, a lady phonedfrom Florida, got her answer and then asked if I was the David ingramshe knew in Regina back in 1959.  Small world as they say.

Call (604) 280-0600 with yourquestion on Sunday Morning.