Closing Defined Contribution Pension Plan (DCPP)

g3kamdbs · Post by **g3kamdbs** » Mon Oct 12, 2009 4:24 pm

I have around 8k in the plan and am planning to close it just to get over with the ever changing IRS filing requirement. I talked to the plan advisor and he said the plan cannot be closed directly. It needs to be rolled over to a RRSP first and then I can close the RRSP, less 25% withholding tax.

My understanding is that I would be taxed on the "growth" of the income as lump sum pension. The non-taxable portion will be the cash amount of the plan calculated at the day I become US resident.

I am planning to report the transaction in my 2009 tax with the following

- Create a new form 8891 for the intermittent RRSP plan, put in contribution (item 9) of 8k, distribution (item 7a) of 8k, plan balance of zero (item 8).
- Copy the amount shown on item 7a into 1040 16a

My question would be what would i put in on item 7b on the 8891 form? And how would I tie the non-taxable portion on form 1040 16b back to the original DCPP plan?

Any suggestions would be appreciated.

Thanks
Ken

nelsona · Post by **nelsona** » Mon Oct 12, 2009 8:44 pm

Since this was pension, it would be entirely subject to US tax; it does not benefit from the same provision accorded RRSPs held at the time one becomes a US resident.

So, your 8891 will show the entire withdrawal as both the gross and net pension income and on your 1040.

nelsona · Post by **nelsona** » Mon Oct 12, 2009 8:59 pm

If this is small amount is part of a larger RRSP pool, I would simply roll it into an RRSP, keep it with the others, and track it as fully taxable when you do collapse it later, perhaps blended with some non-tatxable RRSP withdrawkls.

g3kamdbs · Post by **g3kamdbs** » Mon Oct 12, 2009 9:45 pm

Thanks Nelson for the reply. I already collapsed all my other RRSP accounts. It's a pain in the a** to track all the RRSP filing requirement over the years. I started this filing mess in 2000 and it already changed 3 times until the 8891 was published.

I plan to do this one and for all.

So back to the question, if I plan to file 8891 for the "intermittent" RRSP account then what would i put on 7b? Since this is a rollover I would assume that I will put the full 8k amount in 7b, but do not copy this to 16b of form 1040. This way i am treating the 8k as full pension to be taxed as income.

nelsona · Post by **nelsona** » Tue Oct 13, 2009 8:03 am

Yes you would put the full amount on 16b. It is all taxable.

g3kamdbs · Post by **g3kamdbs** » Tue Oct 13, 2009 2:36 pm

Thanks Nelson

g3kamdbs · Post by **g3kamdbs** » Wed Oct 14, 2009 2:03 pm

Hi Nelson,
One more question if you are still reading this thread, do you think there is any 3520 filing requirement for withdrawing $$ from DCPP?

nelsona · Post by **nelsona** » Wed Oct 14, 2009 2:29 pm

My feelings are that Cdn pensions don't require 3520. But if they did, it would be required every year, not simply when withdrawing funds, so you would have had to file one for the past 10 years.

Why start now?

nelsona · Post by **nelsona** » Wed Oct 14, 2009 2:38 pm

Some have made the distinction that recieving money from the pension requires 3520 be filed in that year.

Perhaps, but if you were say to collect this pension for the next 40 years, would that mean filing 3520 every year? Somehow I doubt that.

I guess for your case, if you want to be safe, file this 3520 once, along with the 8891 once for the rollover to RRSP.

nelsona · Post by **nelsona** » Wed Oct 14, 2009 2:55 pm

Just to add some clarification (if not clarity);

http://www.pwcservices.com/PwC_Serv%5CI ... penElement

This document states that pension palns where the employer has contributed more than 50% of the assets is exempt from 3520 as well.