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New IRS Treatment of Canadian Retirement Plans

The IRS has made it easier for U.S. taxpayers to benefit from favorable tax treatment on their Canadian retirement plans in 2014. Any U.S. taxpayer with a registered retirement savings plan (RRSP) or registered retirement income fund (RRIF) is now eligible for tax deferral, similar to the treatment of IRAs and 401(k)s. To qualify, all you need to do is file a U.S. tax return for any year in which you held an interest in a RRSP or RRIF and include the distributions from the funds on your return. If you follow those regulations, the income accrued in your retirement plan is tax-deferred until it is distributed.

In the past, taxpayers would be eligible for tax deferral by filing Form 8891 and referencing the relevant tax treaty benefit. If you did not know about this requirement, you were required to write a letter to the IRS to retroactively apply the standing to your account. Form 8891 will be eliminated, but taxpayers must be cognizant of their requirements to file FinCEN Form 114 as well as Form 8938 (if applicable).


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