US renunciation - any impact on 401k; referrals for help?

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fangle
Posts: 14
Joined: Tue Feb 18, 2014 1:00 pm

US renunciation - any impact on 401k; referrals for help?

Post by fangle »

Hello,

Dual US/CAN, resident in CAN. I did live/work in US for 14+ years and have a 401K.

I am considering renunciation of US citizenship—just viewed Moody’s seminar re this. I would love to have a TFSA (lower income) and reduce my cross border stress; I do not plan to return to the US to live or work.

From what I’ve researched, I should be a non-covered expatriate and would not have to contemplate exit tax—as I am well below the 2M asset test and I am current with my US tax filings, barring unknown computation errors and FBARs. My 1040s and 2555 have been filed. I’m not required to file 8938 yet as I’m below threshold and I don’t have any TFSAs or PFICs to report so my current tax filings are still within my grasp.

Before going further--would renouncing have any impact on distributions from my 401k at retirement? Or would there be any impact on future small social security benefits—mine or non-citizen spousal? I think the answer is no, but would love to confirm that.

Also, does anyone have any experience renouncing and have any referrals for assistance for someone who does not need to get tax compliant (but maybe a review would be smart) but who doesn’t want to mess up the process either? I would probably need help filing form 8854 correctly, but I don’t think I’m in the bracket where sophisticated strategies are required. Thanks for any thoughts and pointers.
nelsona
Posts: 17153
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: US renunciation - any impact on 401k; referrals for help?

Post by nelsona »

My Opinion. If you are not in a "sophisticated" tax bracket, why bother renouncing. Your 401(k) will always be taxed in US, regardless.
Buy stocks and US ETFs in your TFSA. Special Reporting requirements are likely to go away.
Renunciation is overblown.
nelsona non grata. Non pro. Search previous posts. Happy Browsing :D
MsTunnelCoin762
Posts: 7
Joined: Fri Jan 01, 2021 2:02 pm

Re: US renunciation - any impact on 401k; referrals for help?

Post by MsTunnelCoin762 »

Good afternoon nelsona,

Your response piqued my interest as a dual citizen filer, who has kept away from a TFSA given the common theme of reporting on this issue, i.e., that US citizens should stay away from these given the onerous reporting and lack of deferral of income. Assuming for the moment that reporting requirements aren't likely to change, and if my read on your posting is correct, what would be the attraction of having US stocks and ETFs in a TFSA as a US citizen/dual filer? If I am missing something simple, my apologies in advance... I am hopeful you are correct that special reporting requirements would become a thing of the past but have seen no intel on that as of yet (kept my fingers crossed on the Tax Fairness for Americans Abroad Act, but that seems to have died on the vine)...

Thanks as always!
nelsona
Posts: 17153
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: US renunciation - any impact on 401k; referrals for help?

Post by nelsona »

Americans living in canada rarely face any US tax consequences. So anything that reduces Cdn tax is a benefit. Note that I said sticks or US ETFs (I did not specify US stocks, since that doesn't matter).
Paying a little US tax on some gains (in a TFSA), rather than Cdn tax and no US tax (outside a TFSA) has some modest advantages.

Maybe the part that you are missing is that if you hold non-US ETFs, and Cdm mutual funds (inside or out of TFSA), you need to ALSO do US PFIC reporting/taxation, which is typically onerous.

Many already take the position that TFAs are niot trusts, but this years announcement that removed reporting for RESPs may meean that IRS will do the same for TFSAs.
nelsona non grata. Non pro. Search previous posts. Happy Browsing :D
MsTunnelCoin762
Posts: 7
Joined: Fri Jan 01, 2021 2:02 pm

Re: US renunciation - any impact on 401k; referrals for help?

Post by MsTunnelCoin762 »

Thank you, very interesting, the characterization of a TFSA, an account owned solely by me with no third party care-taking/custodial-type trustee involved (e.g. overseeing the contents of the account for my benefit) as a trust does seem incongruous, hopefully there will be a Rev. Proc. on point before long... I can see I believe the modest advantage you refer to, gains being taxed most likely a 0 to 15% US LT cap gains tax rate (with no FTC), as opposed to 50% of gains taxed in Canada but at a likely higher marginal tax rate? ... And yes, you are right, the headaches of QEF/Mark to market elections as reasons for dual citizens to stay away from the Cdn-listed ETFs (at least outside of RRSPs) would not apply to stocks and US ETFs, great point/reminder...! Maybe one day PFIC rules won't apply/be applied to the Cdn-listed ETFs at the very least, would be nice...!
Ron.Henderson
Posts: 81
Joined: Sun Jan 06, 2019 2:24 pm

Re: US renunciation - any impact on 401k; referrals for help?

Post by Ron.Henderson »

FYI, Moodys are a pack of scaremongering sharks, so don't be alarmed by anything they say on the subject of renunciation.

Not a concern for you because you've been filing - and, more importantly, have US assets - but the IRS recently reported that 40 percent of those who renounce US citizenship never file Form 8854 or go through the tax exit procedure, and the IRS does not make any attempt to follow up. (See: https://www.treasury.gov/tigta/auditrep ... 0071fr.pdf)
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