Canadian RRSPs, RRIFs and Other Foreign Funded Retirement Plans: Tax Planning and Reporting for 402(b) and Other Funded Plans

Description

Canadian RRSPs, RRIFs, as well as other similar funded foreign retirement plans (such as Australia’s Superannuation Fund and various Provident Funds) often present tax reporting and planning challenges for U.S. taxpayers. In many instances, these accounts, while generally receiving deferral treatment on contributed amounts in their host countries, do not qualify for beneficial U.S. tax treatment because they do not meet the requirements of “qualified plans” that receive U.S. deferral of contributions.

Certain non-qualifying funded plans (referred to as employee’s trusts) are governed by IRC Section 402(b), rather than Section 409A, for U.S. tax purposes. Under 402(b), employee’s trusts which are not exempt from tax under IRC Section 501(a) are subject to current tax on employer contributions made to these plans, and depending on whether the employee is considered a “highly compensated employee,” the earnings and accretions on these plans may also be currently taxable.

However, employer contributions and current earnings from plans which do not qualify as an employee’s trust, such as Canada’s RRSP and RRIF plans, are generally subject to current taxation. However, the U.S.-Canada Income and Capital Tax Treaty provides for deferral of RRSP and RRIF income accrued but not distributed to the beneficiaries.

Recent IRS revenue procedures have allowed taxpayers to adopt deferral as a default position under certain circumstances for certain of these Canadian plans but have not eliminated information filing requirements. Tax advisers must know the circumstances under which treaty elections must be made to avoid costly tax penalties for failure to file required information returns.

Listen as our experienced panel provides comprehensive and practical guidance on the tax reporting requirements and planning opportunities for U.S. taxpayers owning RRSPs, RRIFs and similar foreign retirement accounts.