Withholding rate for transfer of pension to LIRA while in US

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panek
Posts: 55
Joined: Mon Jan 07, 2013 7:44 pm

Withholding rate for transfer of pension to LIRA while in US

Post by panek »

Hi there,

I'm considering transferring my deferred pension into a LIRA. I can only transfer about 65% of it with the difference being paid to me in cash less withholding tax.

I'm trying to figure out the tax implications of the withholding.

I'm currently a resident of California on a TN (non-resident of Canada -- cut ties 2 years ago).

What is the withholding tax on the Canadian side of things and how would that be taxed on the US side?

Thanks!
panek
Posts: 55
Joined: Mon Jan 07, 2013 7:44 pm

Post by panek »

Seems it would be taxed 25% on the Canadian side. What I really want to know is how much the tax obligation would be on the US side. Looking for ballpark figure but it seems like the total tax obligation (US + Canada) would be significantly more than 25%. Is there anyway to minimize the US obligation?
nelsona
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Location: Nowhere, man

Post by nelsona »

The portion that is distributed to you is taxable at 25% in Canada, as you say.

Since it was a pension, and not an RRSP, the distributed portion is 100% taxable in US and California, with the 25% Cdn tax eligible for tax credit on your IRS return.
The way foreign tax credits work, it is unlikely that you will get full credit for the Cdn tax,.

I do nt believe cali gives any foreign tax credit.

Any future income from the LIRA will also be 100% taxable in US and state. How it is taxed in Canada will depend on if you withdraw it slowly (periodically) 15%, or take large lump sums, like you did now, at 25%.

So, indeed this withdrawal will cost you quite a bit: 25% NR tax, say 10% federal tax, and whatever your marginal Cali rate is.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
panek
Posts: 55
Joined: Mon Jan 07, 2013 7:44 pm

Post by panek »

Ouch... yeah that's painful... looking at upwards of 45%

It's probably better to leave as is -- especially with earnings of LIRA/RRSP being taxed in California.

I think we've touched on this before but I have not been reporting my pension on the FBAR because I don't have an easy way to find it's commuted value annually. If I suddenly do transfer it to a LIRA and report that on the FBAR would that set off any red flags for the IRS? It's not like I've done anything wrong but I have to think they'd wonder where that came from?
nelsona
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Post by nelsona »

Your pension was not really your account, so was not subject to FBAR, besides, FBAR doesn't look for 'commuted annual value", that is for FATCA, which you do need to report.

But now that it will be a LIRA, you will have no problem knowing its value for bothe FATCA and FBAR.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
zerocc1990
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Post by zerocc1990 »

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panek
Posts: 55
Joined: Mon Jan 07, 2013 7:44 pm

Post by panek »

[quote="nelsona"]Your pension was not really your account, so was not subject to FBAR, besides, FBAR doesn't look for 'commuted annual value", that is for FATCA, which you do need to report.

But now that it will be a LIRA, you will have no problem knowing its value for bothe FATCA and FBAR.[/quote]

Right. Thanks for clearing that up. I have the option to leave the pension alone which I will probably do given that ugly tax picture...
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