Subject: Retirement Plan Benefits between US and Canada Expert: taxman at centa.com Date: Tuesday January 16, 2007 Time: 12:30 PM -0500 QUESTION: I have always lived and worked in Canada. For 8 years, I worked for a company in Toronto that reported to it's US Headquarters in Meriden, CT. The Human Resourses department was out of this head office and we, as Canadian citizens and residents, were included in their US Pension Plan. I am fully vested in this plan, but have since left the company. They have sent to me a form "Benefit Options for Terminated Vested Participants". Included in my options are: A) Deferred Vested Benefit (payable upon retirement age of 65) - I am currently 41 years of age. B) Life Annuity Payable immediately C) Joint and Survivor Option D) Lump Sum Payment - with 20% tax holdback E) Lump Sum Payment Option - Direct Rollover (check made payable to my chosen Depository - either the institution in which I have established an Individual Retirement Account (IRA)or the Turstee of my new Qualified Retirement Plan). No tax would be withheld in this case. We have also been advised that my ex-employer is considering chaning their plan provider (I don't know if this would have any effect on me). Primarily, I am trying to find the best way to transfer the funds to Canada to an RRSP or something similar to avoid the least possible tax implications. I have been advised that if I request the "Lump Sum Payment Option", 20% tax will be withheld for Federal Income Tax purposes in the U.S. I am worried about trying to collect the pension plan (if it even exists anymore) cross-border by the time I'm age 65. I feel that I would have more control over the funds if they were in Canada. Can you offer some advice? Kind regards, Ontario Resident ----------------------------------------------- david ingram replies: If you roll it into a IRA, you can then cash in the IRA, pay the tax and 10% penalty and then put an equivalent amount into an RRSP as a rollover. The amount coming to you is taxable on your Canadian return and the amount rolled over is taxable so they are a wash. You get credit for the tax paid to the US by putting the amounts on lines 431 and 433 of your Federal return and the excess on the equivalent 428 form for the province. This only works if you have significant income in Canada. You DO NOT get credit for the 10% penalty that you have to pay for early withdrawal. If, and I say IF, you can get the US fund holder to consider it a rollover to the Canadian plan (I have seen it done 10 or twelve times in 40 years), then you would not have the 10% penalty. The problem is that Canada has legislation allowing the rollover to the Canadian RRSP but the US legislation is not clear although sometimes the plan administrator will look at Article XVIII of the US Canada Income Tax convention and be comfortable with the concept. However, if I were you, I would just leave the money in the US account and call it a balance rather than take a chance on getting hit with the 10% penalty. Why? Well the 10% penalty left in the account and compounded for another 24 years will be enough to pay a lot, if not most of the tax you will owe at age 65. Remember that most others you might talk to have a vested interest in having you move the money to Canada. Move $30,000 to Canada and your advisor could be making as much as $5,000 "managing your money" over the next 25 years. Here are a couple of other answers you might get something out of. QUESTION: worked in CA for 4 yrs. returned to BC in Apr.'04. Need to transfer my retirement fund but having difficulties with bank and credit union. US specifies that I must roll it over to IRA account (Individual retirement account. I do not want to be subject to the 20% withholding fee for IRS. What would be the best way to get the funds to me here in Canada. ======================================= david ingram replies: 1. move it to an IRA and leave it there in one of the world's strongest economies. Most financial advisors are trying to get "more" of their clients' money into US funds. 2. If you just have to have it in Canada, you have to cash it in in the US and pay your tax to the US. take what is left, add the amount (even if borrowed) of the tax you paid to the US and buy your Canadian RRSP. That will give you a tax deduction which should be larger than the tax you paid to the US. When you get the refund, pay back the loan. You will have transferred the money quite handily. The amount you took out is also taxable on your Canadian return. Pay that tax with the tax you paid to the US as a foreign tax credit. You will likely need help. Fred Snyder at (604) 731-8900 who is with Dundee Wealth management can help you with the process. ---------------------------------- Answers to this and other similar questions can be obtained free on Air every Sunday morning. Every Sunday at 9:00 AM on 600AM in Vancouver, Fred Snyder of Cartier Partners and I will be hosting an INFOMERCIAL but LIVE talk show called "ITS YOUR MONEY" Those outside of the Lower Mainland will be able to listen on the internet at www.600AM.com Local phone calls to (604) 280-0600 - Long distance calls to 1-866-778-0600. Old shows are archived at the site. This from ask an income tax immigration planning and bankruptcy expert consultant guru or preparer from www.centa.com or www.jurock.com or www.featureweb.com. Canadian David Ingram deals daily with tax returns dealing with expatriate: multi jurisdictional cross and trans border expatriate gambling refunds for the United States, Canada, Mexico, Great Britain, the United Kingdom, Kuwait, Dubai, Saudi Arabia, South Africa, Thailand, Indonesia, Egypt, Antarctica, Japan, China, New Zealand, France, Germany, Spain, Italy, Russia, Georgia, Brazil, Peru, Ecuador, Bolivia, Scotland, Ireland, Hawaii, Florida, Montana, Morocco, Israel, Iraq, Iran, India, Pakistan, Afghanistan, Mali, Bangkok, Greenland, Iceland, Cuba, Bahamas, Bermuda, Barbados, St Vincent, Grenada,, Virgin Islands, US, UK, GB, American and Canadian and Mexican and any of the 43 states with state tax returns, etc. income tax wizard wizzard guru advisor advisors experts specialist specialists consultants taxmen taxman tax woman planner planning preparer of Alaska, Alabama, Arkansas, Arizona, California Denver Colorado, Connecticut, Delaware District of Columbia Miami Florida, Garland Georgia, Honolulu Hawaii, Idaho, Illinois, Indiana Des Moines Iowa Kansas Kentucky, Louisiana Bangor Maine Maryland Boston, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon. Paris, Rome, Sydney, Australia Hilton Pennsylvania, Rhode Island, Rockwall, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, West Virginia, Wisconsin, Wyoming, British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec City, New Brunswick, Prince Edward Island, Nova Scotia, Newfoundland, Yukon and Northwest and Nunavit Territories, Mount Vernon, Eumenclaw, Coos Bay and Dallas Houston Rockwall Garland Texas Taxman and Tax Guru and wizzard wizard - David Ingram's US/Canada Services US/Canada/Mexico Tax Immigration & working Visa Specialists US / Canada Real Estate Specialists 4466 Prospect Road North Vancouver, BC, CANADA, V7N 3L7 Calls accepted from 10 AM to 10 PM 7 days a week Res (604) 980-3578 Cell (604) 657-8451 Bus (604) 980-0321 davidingram at shaw.ca www.centa.com www.david-ingram.com Disclaimer: This question has been answered without detailed information or consultation and is to be regarded only as general comment. Nothing in this message is or should be construed as advice in any particular circumstances. No contract exists between the reader & the author and any and all non-contractual duties are expressly denied. All readers should obtain formal advice from a competent financial, or real estate planner or advisor & appropriately qualified legal practitioner, tax or immigration specialist in connection with personal or business affairs such as at www.centa.com. If you forward this message, this disclaimer must be included." David Ingram gives expert income tax & immigration help to non-resident Americans & Canadians from New York to California to Mexico family, estate, income trust trusts Cross border, dual citizen - out of country investments are all handled with competence & authority.
Comments (0)
CEN-TA Cross Border Services - Tax, Visas, Immigration
http://www.centa.com/article.php/UsCaWeekofMon20070115003064.html