lump sum from cdn pension / US early distribution tax 10%

riskybiz64 · Post by **riskybiz64** » Tue Jan 17, 2017 6:22 pm

US resident, Canada non-resident for tax purposes. Lump sum commuted value of non-contributory defined benefit pension in excess of what I can roll directly into a LIRA ... I understand that this will be withheld 25% in Canada and an NR-4 issued, and will need to be claimed as pension income on line 16b of my 1040, with foreign tax credits available to offset the US tax due. However, I'm getting conflicting advice on whether this would also attract the 10% early distribution penalty that the US imposes on non-periodic withdrawals from pensions and annuities if the recipient is under age 59-1/2 (I am 52). The rules certainly apply to US "qualified" plans, but the language is vague with respect to non-qualified plans, which I assume this would be. Is a lump sum commuted value from a Canadian RPP considered a "non-qualified annuity contract"?

From IRS Publication 575 (Pension and Annuity Income):
[i]Most distributions (both periodic and nonperiodic) from qualified retirement plans and nonqualified annuity contracts made to you before you reach age 59-1/2 are subject
to an additional tax of 10%[/i].

nelsona · Post by **nelsona** » Tue Jan 17, 2017 9:59 pm

This appplies only to US pensions
No distribution from a cdn pension is subject to the 10% penalty

riskybiz64 · Post by **riskybiz64** » Thu Jan 19, 2017 6:16 pm

Thanks for the quick answer. Following on the above ... I have accumulated a fairly large foreign tax credit carry forward amount (general limitation income) from previous work outside the US ... in the event that the US tax due on the Canadian pension lump sum exceeds the Canadian tax withheld (25%) would I be able to offset additional US tax by using the carry forward FTC?

nelsona · Post by **nelsona** » Thu Jan 19, 2017 9:14 pm

Yes but it is unlikely at the US tax would exceed hat