Teacher Pensions in US

[anon100]

Hi,

I've read through all the posts and searched for this. RRSP's look fairly simple now. The new TurboTax 2006 even has a form 8891 in it and handles RRSP's very easily.

However, I can't seem to find enough information about regular pensions for Canadians on Visa in the US. As one other poster said, RRSP's are now simpler than Pensions.

My spouse has pension benefits for over 10k which came about after quitting in March. At that time, she could choose the following:
1) Roll over to locked in RRSP.
2) Immediate distribution.
3) Deposits on hold with interest payable annually and can choose options #1 or #2 at a later date.

We weren't sure of the tax situation so choose #3). We specifically didn't choose #1 because we were already living in the US and thought that would involve many tax forms. But with the new rules, maybe a rollover was(is) the best option.

Basically, we want to simplify our tax situation as much as possible. Form 3520 has an estimated IRS time of 42 hours. We'd like to avoid that. What is our best option before the end of this tax year?

A) Roll over to RRSP now.
B) cash out now.
C) do nothing.

After seeing the changes for RRSP's, maybe we were better off rolling to an RRSP. This could still be done this year.

For A) do we have to file forms 3520 for the transfer? Do we have to file form TDF90-22-1?(I assume yes because RRSP's are covered). I have the rest covered( make election under 8891, etc...)
For B) do we have to file form 3520 for the cash out? TDF90-22-1 for having an account over $10k(there is no account number).
For C) do we have to follow proc 2003-23 for the Pension(make an election)? Do we have to file TDF90-22-1 for the pension amounts on deposit? Do we have to file 3520 ever?

Thanks for your help,

[nelsona]

I wouldn't say that RRSPs aresimpler than pensions: For RRSPs you still have to eventaully determine the taxable portion of your payouts when in US, whether they be lumpsum or periodic. Pensions aresimply 100% taxable in both countries.

Also, pension do not need any special reporting. RRSPs need either 8891 or 3520 as well as TD form.

So, as you say, your spouse's pension is taxable in US when you unshelter the money, so it is up to you whether you put that off (by options 1 or 3) or withdraw it immedaitely option 2, paying the Cdn and US tax, but then having no foreigbn reporting requirements thereafter.

I am not of the opinion that pensions need be reported on either RP02-23, 8891 or 3520, nor TD form.

[anon100]

Thanks for your thoughts.

I think we'll go for the cash out right away. It just doesn't make sense leaving it earning 1% interest when we could use the money to pay off HELOC at 8%. Don't want complications later either. So I guess that means.

1) Pay 25% NR tax to Canada( will be deducted automatically). This is our final obligation to Canada.
2) Declare full pension as income on line 16a, 16b.
3) Do NOT declare 10% early withdrawal tax for qualified retirement plans on line 60 as Canada pension probably not qualified.
4) Itemize 25% foreign tax paid on Schedule B. (or figure if line 47 credit is better (form 1116)).
5) Answer No on Schedule B to Part III, question 7a) (TDF 90-22-1 10k+ requirement) as pension not a financial account.
6) Answer No on Schedule B to Part III, question 7c). This would mean the Canada pension is not a foreign trust... OR Answer yes to 7C, but don't file 3520.

Is this all correct? 1-4 is what I read on these forums. #5,6 are vague.

[nelsona]

Sounds about right. No on both question 7s related to pension.

I'm sure that the credit will work out much better in your case.

Since it would appear you have little financial ties in Canada (since you apparently don't need to file td form), getting rid of this pension would save a lot of nuisance. If you had other RRSps, I might suggest a rolover.