Collapsing Ontario LIRA Account

andydc · Post by **andydc** » Wed Oct 21, 2009 10:36 pm

I have a LIRA that was created two years ago from a company pension plan. And I am planning to unlock and collapse the account. From what I read on Form 5, for non-resident of Canda I can only do a Full Withdrawal. My questions are:
- What is the tax consequences on the full withdrwal, is the tax reporting on U.S. side the same as withdrawing from a RRSP account? I have 8891 in order.
- There is a clause on Form 5 "Any withdrawal or transfer from your Ontario locked-in account may also affect your eligibility for certain government benefits." Does anybody know what this statement means?

nelsona · Post by **nelsona** » Wed Oct 21, 2009 11:22 pm

You will pay 25% tax in canada, flat.

You will report it all on your 1040. It is not the same as RRSP since itwas formed from a pension. it is fully taxable in US.

The clause refers to benefits based on income level, like OAS, GIS, GST etc. Since you aren't getting any other Cdn benefits, what do you care?

andydc · Post by **andydc** » Thu Oct 22, 2009 8:33 pm

nelson,

thanks for the reply.

does "fully taxable" mean every dollar after 25% deduction will be taxed at my marginal rate in U.S. for the year it is collapsed?

Do you know if the LIRA is allowed to be transfered to a regular RRSP account under non-resident unlocking? I don't see it is available on the Form 5.

And for goverment benefits, I was thinking in terms of CPP. I have paid into CPP for more than 10 years, am I going to get CPP benefit later?

nelsona · Post by **nelsona** » Thu Oct 22, 2009 8:37 pm

It means every dollar. period. There is no 25% deduction from that amount for the cdn tax you pay. You report the whole amounton your 1040.

The 25% tax will be used either as a credit on form 1116 or, less likely, a foreign tax deduction of schedule A.

The ontario unlocking rules require full collapse.

CPP has nothing to do with RRSP.

andydc · Post by **andydc** » Thu Oct 22, 2009 9:23 pm

Thanks for clarifying again.

rbsullivan · Post by **rbsullivan** » Fri Oct 23, 2009 9:11 am

Do you claim the entire amount on 1040, or just it's growth since leaving Canada (like you do for an RRSP) ?

nelsona · Post by **nelsona** » Fri Oct 23, 2009 9:15 am

The entitre amount. This is not a self-funded RRSP. It is a pension.

Pensions are fully taxable in US.