US Investment firms Honouring 15% tax treaty

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pewterandsteel
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Joined: Mon Mar 05, 2018 11:36 am

US Investment firms Honouring 15% tax treaty

Post by pewterandsteel »

My 401K was with Fidelity. I rolled the 401K to an IRA with Fdelity and am now ready to start withdrawing pension money from it.

Fidelity has informed me that any withdrawals will be withheld at the 30% general rate and they are not obligated to honour the Canada/US treaty of 15%.

I checked with the investment arm of TD since that is who I bank with in the US and they said the 2017 was the last year they were going to be doing 15%. 2018 withdrawals would incur a 30% withholding.

I am looking for recommendations of firms who are still honouring the tax treaty between Canada and the US and only doing a 15% withholding.
Carol
nelsona
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Post by nelsona »

Well, they are "obligated" as long as you are making "periodic" withdrawals, which is difficult to find a definition for, unfortunately, so you are at the mercy of their internal rules.

Hopefully someone else living in Canada will give some names of houses that deal fairly.

I'll bet someone will answer that they have fidelity and have had no problems.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
nelsona
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Post by nelsona »

Note that thse funds, if you file a 1040NR can be treated as connected income, which will mean you will end up with a much lower than 15% taxrate, not that you would need it in Canada.

But indeed having them correctly withhold 15% (assuming you are over 60 yrs old, and not owe 10% penalty) would save that headache.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
rlb
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Post by rlb »

My wife and I both have rollover IRAs with TD Ameritrade. For years they withheld at the 15% rate (we had equal payments each month). In November 2017, they switched to 30% withholding without informing us; we noticed only because the amount deposited was reduced. We called them and they said that "outside tax attorneys" had told them to do this, because even though we were having equal periodic payments, we had the authority to change this at any time and so might conceivably undo the periodic nature of the payments.

We argued with them, and they agreed to reverse the withholding to 15%, but that we would have to call every single month to effect the change. We did so until early this year (2018). Then they switched back to 15% withholding, and telephone support indicated this would continue. I do not know whether this was special for us in order to stop having manual intervention every month, or whether a second review has changed their opinion on this. Unfortunately, one month for my wife was never fixed and I have pretty much given up on that one, but going forward it looks OK for the moment.

We do not want to have to file a 1040NR unless absolutely necessary. We even considered withdrawing all the 401(k) money, though that would be a huge tax hit in a single year, and I do not know whether the CRA would let us claim 30% US tax, probably necessary because the payment would not be periodic. We might have to fight with either the IRA or the CRA.
rlb
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Joined: Thu Feb 17, 2011 8:51 pm
Location: NB, Canada

Post by rlb »

And I just checked to see whether the 2017 1042S forms are yet available, and they are. Unfortunately, because the December adjustments were done in January, the 1042S forms may be "correct" for the timing of what they actually did, but inconvenient for us. The tax withholding rate turns out to be 16.36% rather than 15%. We will have to file 1040NR forms to get back the overpayment, since I am sure the CRA will hold us to the 15% mark. I know nothing about 1040NR filing, and I really did not want to learn. D___!
nelsona
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Post by nelsona »

Always remember, if you end up having to file 1040NR, that 401(k)/IRA payments are connected, so you can actually reduce the tax even further. Getting 15% rate at withholding time is a convenience, not necessarily a tax saving. Keep that in mind if your Cdn tax rate is rel low.

Same for withdrawing lump-sums or collapsing these accounts.

CRA would accept a tax retunr showing what the tax you ended up with, plus any early withdrawal penalty, but would not likley accept a 30% flat rate (40% with penalty) unless of course your 1040NR rate was even higher.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
rlb
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Joined: Thu Feb 17, 2011 8:51 pm
Location: NB, Canada

Post by rlb »

Very helpful, nelsona, especially the information about lump sums or collapsing. Thank you.
pewterandsteel
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Joined: Mon Mar 05, 2018 11:36 am

Post by pewterandsteel »

Thanx rlb. I will follow up with TD/Ameritrade and see if they have gone back to honouring the 15% withholding for everyone.
Carol
bobby
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Joined: Thu May 03, 2018 3:00 pm
Location: Arden

US Investment firms Honouring 15% tax treaty

Post by bobby »

Fidelity apparently changed their policy on tax withholding a couple of years ago. I was told by a fidelity rep that they got in trouble because their records were poor. Very easy for them to take 30% off instead of 15% - no records to keep etc. I switched to Schwab ... they withhold only the 15%. It was very easy to transfer - you can find someone who you can talk to at schwab. I like them.
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