401k pension splitting

[steadgarwin]

My wife and I are USCs resident in Canada, age 50, with 100% of income from my 401k and no other tax complications. The lump-sum withdrawal amounts vary from year to year so cannot be considered periodic -- is there any complication to pension splitting income and FTC 50/50 in this case?

Also, In previous years I did not split, is there any risk in refiling those years with splitting?

thanks!

[nelsona]

401(k) income IS eligible for income splitting (not IRA) and (except for QC) eligible at any age.

CRA accepts you splitting the foreign (or not, your choice).

You can change your split election for past years.

[steadgarwin]

By pension splitting, am I implying periodic payments, opening myself to a 15% FTC limit on pensions unless I re-source income? My US effective tax rate is ~25% (with early withdrawal penalty) and I have not been re-sourcing income to Canada based on the observation that my withdrawals were irregular in size and date, thus not periodic and not subject to the 15% limit.

By invoking pension splitting, does FTC splitting address the issue? (in the case of 25% US tax, myself and my spouse can each claim 12.5% FTC, and slide under the 15% limit)

On a perhaps separate note, Is it possible to give my than 50% of the FTC to my spouse? By refiling past years to include splitting, although there would be a large net refund, I am opening myself up to significant interest costs on my spouses "unpaid" taxes (before she had 0 income in prior years, now she would have half my income.) I'm hoping that giving her most of the FTC would reduce her past years' liabilities that the splitting generated.

[steadgarwin]

By pension splitting, am I implying periodic payments, opening myself to a 15% FTC limit on pensions unless I re-source income? My US effective tax rate is ~25% (with early withdrawal penalty) and I have not been re-sourcing income to Canada based on the observation that my withdrawals were irregular in size and date, thus not periodic and not subject to the 15% limit.

By invoking pension splitting, does FTC splitting address the issue? (in the case of 25% US tax, myself and my spouse can each claim 12.5% FTC, and slide under the 15% limit)

On a perhaps separate note, Is it possible to give my than 50% of the FTC to my spouse? By refiling past years to include splitting, although there would be a large net refund, I am opening myself up to significant interest costs on my spouses "unpaid" taxes (before she had 0 income in prior years, now she would have half my income.) I'm hoping that giving her most of the FTC would reduce her past years' liabilities that the splitting generated.

[nelsona]

From an FTC point of view, US pensions are not subject to the 15% limit, and the early withdrawal penalty IS allowable along with the regular tax, even if this pushes you above 15%. This has been accepted by CRA for well over a decade. This was the resolution when many began "transferring" their IRA/401(k) to RRSPs in Canada

So, there is no need to "slide under" the 15% in any event, but splitting the pension income would not alleviate this, since regardless of how you split it the tax rate would be 25%.

US Pension income is not something you need to "re-source" to Canada, since all the tax is is accepted by Canada.

Btw, if your 401(K) is your only income (as you implied in your opening post), how are you getting up to the 15% EFFECTIVE tax rate on that income on your joint 1040? You would need to be taking a HUGE payout (~US$250K)!

[steadgarwin]

True, part of the reason I've withdrawn so much is the high cost of single earner taxes (specifically, Nova Scotia). This year and refiling previous years with splitting will make such a big difference for us. My prior accountant (a well-known person) said I could not split because the withdrawals were not periodic.

Nelsona- you are a saint to provide the information on this board. I would gladly pay for a consultation with you if you offered them.

[nelsona]

There is absolutely NO requirement for the 401(k) income to be periodic, in order to be split.