US Tax Resident - Canada RRSP contribution

[sv_siri]

Hi,

Apologies for the long thread at first. I have questions about contributing while working and living in USA.

• We all are Canada Citizens and US Tax Residents
• Work and live in USA for the past 3 years plus.
• Work on TN visa and a family of 4.
• Me and my wife has RRSP accounts (untouched after moving to USA).
• Kids don't have RESP and RRSP yet.
• All RRSP accounts are in cash. This question is not related to distribution of earnings and its related taxes.
• We have over 20K room in RRSP. Say, this means we can contribute this amount as pre-tax dollars if you are Canadian and living in Canada.
• RRSP contributions are pre-tax dollars and can save. Same with RESP, which is for kids.
• TFSA is another vehicle but it is after tax contribution. For this my understanding is that we cannot contribute as non-resident, as per Canada emigrants rules. This is clear I cannot contribute to TFSA.
• I am filing taxes only in USA and nothing in Canada. i.e., I file 1040 and state returns only in USA and nothing in Canada.

Questions are related to RRSP and RESP contributions from USA: Since we are making money in USA,

• Can I contribute to our Canadian RRSP accounts i.e., pre-tax dollars to get Tax benefits in USA? 
• similarly can I contribute to my kids Canadian RESP accounts i.e., pre-tax dollars to get Tax benefits in USA?

PS: Please DONT say that this has to be posted in Canada TurboTax forums. They don't understand the US tax. There is no TT cross border forums. 

Thanks in advance

SSV

[tagteam]

@pk?

[sv_siri]

I did not hear back from anyone :(

[Mike-Nfld]

If your CRA account shows that you have RRSP credits, you can make an RRSP contribution.  Too late for 2022, but the contribution carries over to 2023 and beyond.  Don't know about RESPs, but expect the rules to be the same.  You cannot shield the RRSP contribution from US taxes - it cannot be treated as US pre-tax and excluded from your US income if you live in the US.  If you lived in Canada and have US-source income, you might be able to exclude the income as exempt foreign-source income (Form 2555 and Sched SE Adjustments [manual entry in Part II, line 9 - TTax doesn't ask you]), but only if you meet the rules of having no residence or office in the US.

Do you file Canadian taxes?  If so, the RRSP contribution is a pre-tax exclusion.  If you don't file Canadian taxes, I'd wait until you return to Canada and make the RRSP contribution then.  But, you make up your own mind - it may be worth it to you to make it anyway.

[RalphH1 · Accepted solution]

I agree with what @Mike-Nfld wrote about the RRSP (since you’re a U.S. resident), as well as his suspicion about the RESP — you cannot deduct the contributions from U.S. taxable income. (Which we would expect, since even the domestic Education Savings Account contributions aren’t deductible...)

In fact, the IRS is even less accommodating with the RESP, allowing no pre-tax or tax-deferral benefit in any situation. So U.S. residents (for tax purposes) generally avoid even having such an account for their kids (unless they can put it in the name of a Canadian relative), as the year-to-year earnings are officially taxable here.

@sv_siri, this thread has had a leisurely time frame, but I hope you’ve been getting a handle on all of this so you can decide how to proceed...

[sv_siri]

Thanks for the reply @Mike-Nfld 

I have CRA account showing RRSP contribution room for more than $25K. I am not living in Canada, but living and working in USA. I do NOT file Canadian taxes. 

Do you have official link, please share about this point you mentioned ... "You cannot shield the RRSP contribution from US taxes - it cannot be treated as US pre-tax and excluded from your US income if you live in the US."

Thanks for this point, which makes sense.  If you don't file Canadian taxes, I'd wait until you return to Canada and make the RRSP contribution then.

main reason is that I want to contribute now and do investments in stocks and can be useful for retirement and also deduct/reduce from US tax filing.

RESP ... will wait for others to answers if any 

Appreciate your reply.

[sv_siri]

Thanks for the reply @RalphH1 

I am trying to understand all the tax related strategies.

Main goal 

- Contribute to RRSP, RESP and deduct/reduce when we file taxes in USA

- Grow the RRSP, RESP without paying any taxes i.e., tax-deferral strategy, and pay taxes during withdrawals.

I am trying to find official links to these but could not find any.

Please share any other strategy for Canadians working in USA and not filing any tax forms in Canada and filing only tax forms in USA (both federal and state).

Further, additional details,

I was told that in RRSP, RESP, the gains are tax free growth even while living in USA including states like California and Texas. Say, if we invest in stocks and do buy/sell and we can keep the amount in RRSP without paying taxes in that year. We only pay taxes to this profits only when we withdraw. Please correct if my understanding is wrong.

Regards

SSV

[RalphH1]

Here are a couple of articles (1, 2) regarding the non-recognition of the RESP by the IRS. Ideally we’d have an official IRS link, but sometimes those are scarce when it’s a non-issue for U.S. tax, and everyone’s interpretation is based more on what the IRS doesn’t say than on what it does say. (You can find many more like these, however.)

The IRS does tell us specifically about the tax-deferral of the RRSP (in this news release), and how Form 8991 is no longer needed for that. However, there’s no deduction on a U.S. return for the contributions a U.S. resident makes here (only a treaty-based position for U.S. persons in Canada in an employer-sponsored group plan).

@sv_siri, here’s an interesting article discussing that aspect of the RRSP, and some others...