US CANADA RRSP distributions for US residents

QUESTION:

My wife (57) and I (61), now living in Michigan, both have small RRSPs from our years of working in Canada. Previously I was told that I could do nothing with the money, not move it to an RRIF or even move it within the family of the Investment Company. Now I'm told I may be able to withdraw it in increments of less than 5k for a 10% withholding. If this is possible what are benefits/drawbacks of withdrawing now vs. waiting till retirement? Also, I'm unsure about reporting requirements; I've only just heard about form 8891.

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david ingram replies;

Dealing with a Canadian RRSP has become much easier over the years.

You have been dealing with people who are inexperienced in dealing witr non-residents of Canada who live in teh USA.

The minimum/maximum tax for you to pay on the withdrawal is 25%.  If you roll it into a RRIF, the withholding is 15% under Article XVIII of the US Income Tax treaty.

You should have been filling out form 8891 or its equivalent under 89-45 since 1989.  Thankfully, the IRS and treasury have not been enforcing the onerous penalties associated  with non-reporting  (35% of the principal PLUS 5% per  year of non-reporting for the 8891 or equivalent and up to $500,000  PLUS up to 5 years in jail for failure to  file form T DF 90-22.1 .

See this older answer
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This is not the result of a question but is the result of an IRS Tele-conference on June 20, 2007. 

The subject was the reporting of foreign bank on form T D F 90-22.1.

In particular, the tele-conference made the point that  June 30th  "IS" the deadline and that fines are being increased and in particular, there are / will be severe penalties for non-compliance.

It would seem that there is NOW a $10,000 penalty for failure to file the form although that is in the regulations and not on the form.

I know from other sources that some 1,000 clients of former advisor Jerome Schneider are in the process of  being fined as I write this.

I also admit that I have not worried much about the June 30th filing date in the past.

However, the teleconference made the point that practitioners are subject to fine for not following up on these filings.

As I write this Terry or Phyllis ?? is making it very clear that RRSP accounts must be reported but that the Company Pension does not have to be reported.

So--- if you have not being reporting your foreign accounts - report now.

AND, they also made the point that everyone with foreign accounts MUST file schedule B, even if there is no earnings form the accounts.

AND, they also made the closing  remark that if they have NOT been filed in the past, taxpayers shoiuld file back SIX years.

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david ingram �

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