Non-US Citizen retiring in Canada with US pension plans

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xionzenith
Posts: 2
Joined: Mon Apr 19, 2021 7:30 pm

Non-US Citizen retiring in Canada with US pension plans

Post by xionzenith »

Hi all

We're in a bit of unique situation with my mom retiring soon and I was hoping I would be able to get some insight on this forum. I've seen some amazing articles here, so I hope there are many accounting nerds/geeks who can help and point me in the right direction. I am CPA myself, but I can't seem to find rules specific to our situation.

Facts:
- 69 year old single woman (S), retiring Summer 2021
- not a US Citizen, but green card holder living in Texas
- relocating to Canada after retirement. Not a Canadian citizen either, but will be arriving as a permanent resident sponsored by myself
- holds a 401K, Traditional IRA and Roth IRA in the US

Questions I have are numerous!
- How much can S expect to pay in taxes on her periodic payments after she has re-located to Canada? I wasn't sure if this would just be the 15% withholding tax or 15% plus regular income tax to the IRS, followed by Canadian tax return and max 15% foreign tax credit? This leaves room for potential double taxation

- Will US institutions know to only withhold 15% and not 30% due to the tax treaty? Or will they know to withdraw any at all?

- What are the consequences of collapsing all US retirement accounts and moving monies to Canada? Lumpsum withdrawal penalty, 15% or 30% withholding tax, income tax in Canada and in US? All of the above or one or none?

Would appreciate any insight here! thanks
nelsona
Posts: 17014
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Non-US Citizen retiring in Canada with US pension plans

Post by nelsona »

Since she still has a Green card (she can't keep it long once she leaves US), she won't be subject to 15% tax on withdrawal, she will simply have graduated withholding based on how much she takes out (the manager will figure this out). Then she files her 1040 and figures the tax. She will then owe so MUCH more in Canada, that the US tax will seem trivial. Her pverall taxrate will be the rate for her province.

Once she is no longer a green card holder, then she will be subject to 15% withholding, but she can file a 1040NR to reduce this if she wishes.

None of her Roth will be taxable in either country, if she files the proper statement the first year in Canada.

if she wants to take it all (or better yet, transfer it all to a Roth), then she should do this before leaving US, so that she would only pay US tax on the conversion/withdrawal. Do not put any money into Roth once she moves to canada.
I am taking my usual break from this site until May. Always too many tax-form specific questions at this time of year...
nelsona non grata. Non pro. Search previous posts. Happy Browsing :D
xionzenith
Posts: 2
Joined: Mon Apr 19, 2021 7:30 pm

Re: Non-US Citizen retiring in Canada with US pension plans

Post by xionzenith »

Thanks; I like the idea of putting everything in a Roth - we'll have to see how much that costs tax wise.

Re: no withholding tax as long as she has green card - can you clarify this? My understanding was that the withholding depends on whether you are taking the funds outside US borders, which she will be once she moves to Canada, while her greencard is still active.

Best
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