401(K) pension withdrawal by Canadian - Cross Border

I lived worked and paid taxes in the US  for ten years in the 1980's. During that time I built up about $100K in a 401K plan. Since 1992 I live back in Canada and pay taxes here. I am retired now and want to start withdrawing from the 401K. The payer says they have to withhold 30% tax. What options if any do I have?
Thanks 
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david ingram replies:
Please note that you will also be eligible for US Social Security and should be applying for that as well.
Your payer is incorrect with regards to the 30% - tell them to look up Article 18(2)a  of the US Canada Income tax Convention.
The article reads as follows ( pay attention to paragraph 2(a)):
  
Article XVIII
Pensions and Annuities
1.  Pensions and annuities arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State, but the amount of any such pension that would be excluded from taxable income in the first-mentioned State if the recipient were a resident thereof shall be exempt from taxation in that other State. 
2.  However: 
  (a) pensions may also be taxed in the Contracting State in which they arise and according to the laws of that State; but if a resident of the other Contracting State is the beneficial owner of a periodic pension payment, the tax so charged shall not exceed 15 per cent of the gross amount of such payment; and 
  (b) annuities may also be taxed in the Contracting State in which they arise and according to the laws of that State; but if a resident of the other Contracting State is the beneficial owner of an annuity payment, the tax so charged shall not exceed 15 per cent of the portion of such payment that would not be excluded from taxable income in the first-mentioned State if the beneficial owner were a resident thereof. 
3.  For the purposes of this Convention, the term "pensions" includes any payment under a superannuation, pension or other retirement arrangement, Armed Forces retirement pay, war veterans pensions and allowances and amounts paid under a sickness, accident or disability plan, but does not include payments under an income-averaging annuity contract or, except for the purposes of Article XIX (Government Service), any benefit referred to in paragraph 5. 
4.  For the purposes of the Convention, the term "annuities" means a stated sum paid periodically at stated times during life or during a specified number of years, under an obligation to make the payments in return for adequate and full consideration (other than services rendered), but does not include a payment that is not a periodic payment or any annuity the cost of which was deductible for the purposes of taxation in the Contracting State in which it was acquired.
5.  Benefits under the social security legislation in a Contracting State (including tier 1 railroad retirement benefits but not including unemployment benefits) paid to a resident of the other Contracting State shall be taxable only in that other State, subject to the following conditions: 
  (a) a benefit under the social security legislation in the United States paid to a resident of Canada shall be taxable in Canada as though it were a benefit under the Canada Pension Plan, except that 15 per cent of the amount of the benefit shall be exempt from Canadian tax; and 
  (b) a benefit under the social security legislation in Canada paid to a resident of the United States shall be taxable in the United States as though it were a benefit under the Social Security Act, except that a type of benefit that is not subject to Canadian tax when paid to residents of Canada shall be exempt from United States tax. 
6.  Alimony and other similar amounts (including child support payments) arising in a Contracting State and paid to a resident of the other Contracting State shall be taxable as follows: 
  (a) such amounts shall be taxable only in that other State; 
  (b) notwithstanding the provisions of subparagraph (a), the amount that would be excluded from taxable income in the first-mentioned State if the recipient were a resident thereof shall be exempt from taxation in that other State. 
7.  A natural person who is a citizen or resident of a Contracting State and a beneficiary of a trust, company, organization or other arrangement that is a resident of the other Contracting State, generally exempt from income taxation in that other State and operated exclusively to provide pension, retirement or employee benefits may elect to defer taxation in the first-mentioned State, under rules established by the competent authority of that State, with respect to any income accrued in the plan but not distributed by the plan, until such time as and to the extent that a distribution is made from the plan or any plan substituted therefore. 
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When you file your Canadian return, you will convert the amounts to Canadian dollars and put the gross amount on line 115 and 433 of your tax return (line 433 can be found on Schedule 1 and you also need to put it on the corresponding line of your Provincial form T2036 form which calculates the provincial foreign tax credit.  The 15%  tax you paid to the US is then put on line 431 of Schedule 1 and the corresponding line on schedule T2036.
When you get your social security, 100 % goes on line 115 of your T1 and then 15% gets deducted on line 256 under the terms of paragraph 5(a) above.
There is no tax payable to the US on your social security.
Good luck and good karma and do NOT let taxes be the death of you!
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