How to handle NR4 code 43

[vossko]

Hi All,

My wife received and NR4 code 43 (registered retirement savings plan lump sum payment) from a Canadian bank. She was the beneficiary of her brother, who passed away and left her his RRSP through his estate. 

The bank holding his RRSP cut a check last year and mailed it to my wife. The estate paid the Canadian taxes due on that. So my wife received the entire balance. It was over 100k US, so we will need to file a Form 3520. No issue there.

I was surprised to get this NR4 from the Canadian bank handling this. The amount of income is not very large (~5k box 16), but somehow the entire taxes were not due to the estate when the bank liquidated the RRSP. The NR4 indicates that 25% taxes were withheld (box 17). My wife never received any further check from the bank, so it must have been included in the total when the account was liquidated. 

I'm not sure how to handle this income in turbotax. Trying to work through the Canadian Registered Pension Income section doesn't work at all. She can't actually inherit an RRSP from her brother, so she never had ownership or control over the account; it was liquidated directly into check form for her. I can enter as misc income, but there is no way to indicate that foreign taxes were withheld, so that I can get a credit for those. 

I could "make up" a 1099-INT/DIV so that I report the income and get foreign tax credit, but that seems weird. I'm not sure why we even have to report this. Inheritance is not taxable (only gotta file the 3520) and this "income" was just part of the inheritance, and the Canadian government already withheld the 25% tax. 

Any ideas on what I should do?

Thank you!

[DaveF1006]

Yes, this can get complicated since it involves both inheritance law and cross-border retirement rules. You’re correct, inheritances usually aren’t taxed as income in the U.S. But an RRSP, much like a U.S. IRA, holds income that hasn’t been taxed yet. As a result, this is fully taxable to your wife. Here is how to report.

Do not use the "Canadian Registered Pension" section; as you noted, she isn't the owner of a pension. Instead, report it as Miscellaneous Income to keep the entry clean and avoid "1099-R" e-file rejections:

1. Go to Federal > Wages & Income.
2. Scroll to the bottom and select Miscellaneous Income, 1099-A, 1099-C.
3. Select Other reportable income.
4. Description: Enter  "Distribution from an inherited RRSP ".
5. Then list the amount from the check.

Even though you entered the income as "Miscellaneous," you can still link the 25% withholding (Box 17) to it and receive a foreign tax credit.

1. Go to Federal > Deductions & Credits.
2. Select Foreign Tax Credit (under Estimates and Other Taxes Paid).
3. When the interview asks if you have "other types" of foreign income (after it checks for 1099-INT/DIV), say YES 
4. Choose Passive Income as the category.
5. Country: Canada.
6. When you get to a section that says Gross Income, type "Inherited RRSP Income." for a description
7. Income Amount: Enter the same USD amount you reported in the Miscellaneous section.
8. Foreign Tax Paid: Enter the amount of foreign tax from the distribution. This will be in a section where you enter the foreign taxes paid 
9. Date Paid: Use the date on the check or 12/31/2025.
10. Finish out the interview by selecting continue until the end.

[ Edited 03/5/2026 I 7:51am PST]

[vossko]

Dear Dave,

Thank you so much for your reply. 

My research indicated that is should be reported under Misc Income, so I did that. However, I was unable to ever trigger the "do you have other types of foreign income". 

The TT help also indicates that I need to enter foreign income credits in order of largest to smallest. Is that still true. So if the taxes paid on this inheritance are larger than the foreign taxes attached to my other 1099s, how would I do this. I've only been successful if I enter the NR4 info as a 1099-int and indicate that foreign taxes were paid. Then I can work on the form 1116 in whatever order I want. 

That said, the rules are pretty clear on what to do (estate paid taxes on bulk of RRSP at date of death), I am responsible for taxes on the gains until the check is cut (on the NR4). I need to file a F3520 (over 100k transferred, mfj), FBAR (over 10k at any time in year), but do NOT need to file form 8938 (account closed by year end, and never exceeded 150k during the year).

I'll give it a try again, and report back. 

Thanks

[DaveF1006]

To clarify, were the amounts on the NR4 paid with the distribution check and the only purpose of this form was to inform you that the taxes were paid at the time of the distribution? This part isn't clear to me.

[vossko]

Hi Dave,

No, the NR4 reports the gains from the date of death to the date of the distribution. I understand that Canadian law considers the RRSP to be fully liquidated (if that is the right word) at the moment of death, and the taxes are due to the estate. And taxes on any gains from the date of death  are due to the beneficiary. 

In this case the NR4 income is small (<5k) and reports that difference. I received the money as part of the lump sum distribution but the NR4 also reports the 25% taxes that were withheld on that smaller portion. 

My understanding is that the bulk of the payment is the "gift" portion, I need to report on my 3520 but not as income, and the smaller part is income I need to report in my taxes. And I need to file the FBAR even though I never had control over the account, simply because I "owned" it in some way for a short period of time. 

I've did seek out advice from several independent and authoritative sources (the bank, tax attorney) just recently. So I am pretty confident in that part. I just now need to figure out how to report it properly in Turbotax and claim the credit for the foreign taxes paid. 

I haven't had a chance to re-try to trigger the foreign tax credit section for the misc income. I'll give it a shot when i get home from work. 

[DaveF1006]

Since everything was already distributed and reported in Miscellaneous income, you will not want to create another income item like a1099 INT. 

The income reported under miscellaneous income is not linked to a Foreign Tax Credit section like your INT/DIV income. You must manually record this information. 

1. Now go to Go to Federal > Deductions & Credits>Select Foreign Tax Credit (under Estimates and Other Taxes Paid).
2. After going through the initial interview sections, the program will recognize your linked DIV/INT entries. After checking a few checkboxes and reporting the income, you are done reporting the income, that part of the Foreign Tax Credit is complete. Now you need to enter information about the 25% witholding from the NR4.
3. After completion, you may be asked a question such as Other types of foreign income" and you've already entered it via the 1099-INT or DIV, say NO.
4. This will prompt the program to report another foreign tax credit.
5. In a screen that says completing Form 1116, press continue at the bottom
6. Continue until you see Choose an income Type.  Choose passive income.
7. Under country summary, Canada should already be listed.  Select edit
8. Under Gross income, list the amount of earnings that is listed on the NR4
9. Continue through the expenses and Foreign Losses
10. Now in Foreign Taxes paid--Canada, enter the amount of Foreign Taxes paid.
11. Continue through until you are done with this section.

When everything is completed, your foreign taxes paid will now be reported accurately from your interest, dividends, and NR4 and be reported as passive category income on Form 1116. 

One last note, when TurboTax mentioned ordering, it meant that the largest foreign income item should be listed first. The problem is if the NR4 item was the largest, it should have been listed first. The issue is that your DIV/INT income was already reported and ready to be linked in the Foreign Tax credit and the NR4 income was added after. 

If you have any error messages regarding this you may need to delete the 1099 DIV/INT.  Report the NR4 information first in the Foreign Tax Credit section and then re enter your 1099 DIV/INT.  After reporting this, go to your foreign tax credit session and revisit the linked DIV/INT to complete this section.

Don't do this, though unless you have issues.