US tax and new Quebec RRIF plan

[bostonrob5]

I am 70 this year with dual Canada-US citizenship living in the US for 28 years. I am terminating a Quebec employer-sponsored pension plan which was $20k (my new cost basis) when I left that employer and Quebec for the US in 1988. It is now $180k and I have these transfer options:

An outside rrsp or rrif,
A deferred or immediate annuity,
Nothing,
Direct cash-out payment- this forfeits the employer contributions- about half, less taxes,
Group RRIF with the employer.

The last choice- Group RRIF- is my preference. I anticipate taking up to 10% annual withdrawal with 10% non-resident tax withheld for CRA, with the possibility of converting the RRIF to an annuity in 5-10 years.
I also have a US 403 of $350k which I am converting to an IRA.

I am assuming there is no Quebec tax withholding in addition to the 10% CRA.
I am also assuming I can use the annual 10% RRIF minimum withdrawal towards the IRS Required Minimum Distribution and make up the difference from the IRA RMD.
I expect to use the 10% CRA tax withhold as a tax credit on my 1040 tax returns.

Would you agree with the RRIF option in this situation? Are my assumptions correct? Do you have any other suggestions?

Thanks.

[nelsona]

First, let's review your many assumptions.

The provinces do not tax pensions regardless of where they were created or maintained.

The CRA tax withheld will be 15%, not 10%. make sure they are fully aware that you are a non-resident of Canada.

You CANNOT use the RRIF withdrawal as having any effect on your IRA RMD, they are completely separate.

Whatever income you take from this Cdn pension plan will be 100% taxable in US (there is no cost basis for employer-sponsored RRSP/RRIFs -- that applies only to privately funded RRSPs/RRIFs). You will need to report this on your 1040, and take credit for the 15% tax on form 1116.

Since you are at retirement age, I would be taking this as the RRIF rather than foregoing the employer portion. make sure the rrif manger will allow US residents to be their client.

I assume you are also collecting CPP and reduced OAS from Canada (not taxed in Canada) and reporting this on your 1040 as social security?

[bostonrob5]

Thank you so much for the speedy and thoughtful reply. It has been so difficult to find someone who can answer this for me.

I made a mistake about the 10% withhold. Thanks.
I thought I needed to include the amount of my Canada employer pension plan along with my 403 in my calculations for my IRS RMD this year.
I was not aware that for IRS purposes I am not allowed to adjust the cost basis for my employer-based pension plan to the balance when I departed, as opposed to private funds.
I have been collecting and reporting OAS and QPP since age 65. My wife plans to apply for OAS and QPP also at age 65 and then apply for half of my Social Security at age 66. She is 63.
The 15% CRA withhold applies to “periodic pension paymentsâ€￾. Would a single annual payment of the 10% maximum qualify- an amount that is changing slightly each year?
Is there a regulation about not being able to make a withdrawal during the first year the RRIF is formed?
Is the advantage to putting the RRIF in my name instead of my wife’s (age 63) for the sooner and larger minimum withdrawals?

[nelsona]

Your RRIF is not a US retirement arrangement, so it has no bearing on the RMD for your IRA/403/401(k) etc.
Your RRIF has its own minimum withdrawal, which begins the year AFTER you create the RRIF. Some managers will not view a withdrawal made in the year you create the RRIF as a "periodic" withdrawal for 15% tax rate purposes. There is of course no regulation that forbids you taking any amount out of your RRIF, its just that you may not get the favourable tax rate if you take it "too soon" or "too quickly". For safety, start taking out only the year after, if you can wait.

As long as your RRIF withdrawal is no more than 10% of the value at the beginning of the year, it is considered periodic whether it is paid out monthly or in lump sum. as you age, the amount you can take out become the GREATER of 10% or TWICE the minimum for your age.

You can't put the RRIF in your spouse's name, and there really is no advantage for you use her age to calculate the withdrawal, since you are wishing to draw down faster than the minimum anyways.

[bostonrob5]

The plan is being administered by a large multinational firm out of Toronto. The 1-800 calls get a different â€￾pension analystâ€￾ each time who is unable to answer a single question about some general and non-resident aspects of the RRIF without first putting me on hold and returning with a less than confident response. I don’t find it reassuring either that “Yes sir, we have had some other non-residents in the planâ€￾.
I am less concerned about that than the prospect of taking distributions starting next year and then having to hire people to retrieve excess taxes that may be inadvertently withheld.

[nelsona]

The form for requesting a refund from CRA is a simple NR-7R form. You would not need anyone to fill this out for you.

A pro is not going to get this back more easily or faster than you will.

it is quite typical that brokerages don't know the rules, so be patient. and when you do find someone, get their contact info and deal with them directly each time thereafter.