My wife is a Canadian Citizen (age 52) and permanent resident of the US for 10 years. All ties to Canada have been severed for tax purposes long ago and she will be filing form NR-73 to get non-residence status with CRA.
Her ex-Husband's BC Pension Plan is giving her a few options for her commuted value.
1. Transfer to Locked-in RRSP or LRSP
2. Transfer to Locked-In LIF or LLIF
3. Lump Sum in Cash
4. Receive payments directly from BCPP when ex-husband retires. (He is elegible now at 55 but said he won't retire till he is 60?)
Which options helps us avoid the 25% flat treaty tax? It seems wise to leave the money in Canada if we can wait till retirement and withdraw pension payments at a 15% tax rate. Does the 15% tax on payments apply to both Options #1, #2 and #4? Option #3 = huge tax hit on both sides. Option #2 payments would start hitting our US income right away and Option #4 ties us to someone else's retirement plans and this is not optimal for us.
[b]MAIN QUESTION: It seems Option #1 (RRSP) is the best choice, but it is not clear as to what would be my wife's minimum retirement age to start collecting pension payments (15% tax). Is it 55, or is she still tied to her ex-husband's age, or is it a higher age? The banks and even BCPP are not clear on this point.[/b]
Some notes of info that might be related:
The BCPP has stated that because of living in the US, she can submit a CRA Authorization For Non-Resident Tax Exemption (NRTA1E) form with her transfer paperwork. I assume this prevents BCPP from withdrawing any taxes when transfering the RRSP to a Can Bank?
I have also read that being a non-resident for tax purposes immediately provides for "Exceptions to the Locking-In Requirement for Locked-in RRSPs and LIFs" according to the Financials Institution Commission Website. How does this affect the tax rates? (25% or 15%)
I have some followup questions about paperwork required after getting the RRSP, but I'll save that for another topic.
Retirement age for BC LRSP non-resident Can in US
Moderator: Mark T Serbinski CA CPA
1 and 2 will of course have no immediate tax in either US or canada, since there is no withdrawal of funds. LLIF would start next year at 15% taxrate.
At some point in the future (when you can break the lock) you would then need to decide for yourself whether to take it all (at 25% tax) or periodically (at 15% tax).
3. would be 25% taxed immediately. The entire amount would be taxablein US, and the 15% tax would qulify ofr tax credit inUS, but some extra tax would still apply, so not the best choice.
4 (and 1 and 2 if you so choose) would result in what is known as periodic payments, which would be taxed at 15% in canada. The entire yearly ammount would be taxable in US and the 15% tax would be a credit.
As to when the 15% kicks in: it is when your wife would be obliged to take funds. For the LLIF tha twould be now, for the LRSP it would be whenever she converted to a LLIF herself, or 71 whichever is sooner. Any withdrawl from an RRSP is by definition non-periodic. It musdt be first converted to a LIRA or LLIF to benefit from the 15% rate, and remeber that only the required withdrawl (plus a factor) is eligible for the 15%, any morethan that would be 15% taxed.
Add to the mix, that if your spouse is not working, she can treat any of this income, regardless of age or type iof withdrawal, as pension income tto be taxed at 'normal' graduated rates. This is a 217 election, which generally means no tax for the first 10-12K of withdrawal per year.
I would choose 1 if either she or you are still working, or 2 if you are both retired. Choose 3 only if you both plan to work for MANY years and you don't want the hassle of dealing with all the regualtory issues iof RRSP in US. I would avoid 4, as this seems to take control away from you.
Since they already offered you the option of a LLIF, tha twould seem to indicate that the money is available now, so she could convert the LRSP to a LIRA any time she wanted. But if you choose option #1, you goal would be to wait as long as poosible, not strat withdrawing as soon as possible. If that wa syour goal, just take LLIF or LIRA now.
At some point in the future (when you can break the lock) you would then need to decide for yourself whether to take it all (at 25% tax) or periodically (at 15% tax).
3. would be 25% taxed immediately. The entire amount would be taxablein US, and the 15% tax would qulify ofr tax credit inUS, but some extra tax would still apply, so not the best choice.
4 (and 1 and 2 if you so choose) would result in what is known as periodic payments, which would be taxed at 15% in canada. The entire yearly ammount would be taxable in US and the 15% tax would be a credit.
As to when the 15% kicks in: it is when your wife would be obliged to take funds. For the LLIF tha twould be now, for the LRSP it would be whenever she converted to a LLIF herself, or 71 whichever is sooner. Any withdrawl from an RRSP is by definition non-periodic. It musdt be first converted to a LIRA or LLIF to benefit from the 15% rate, and remeber that only the required withdrawl (plus a factor) is eligible for the 15%, any morethan that would be 15% taxed.
Add to the mix, that if your spouse is not working, she can treat any of this income, regardless of age or type iof withdrawal, as pension income tto be taxed at 'normal' graduated rates. This is a 217 election, which generally means no tax for the first 10-12K of withdrawal per year.
I would choose 1 if either she or you are still working, or 2 if you are both retired. Choose 3 only if you both plan to work for MANY years and you don't want the hassle of dealing with all the regualtory issues iof RRSP in US. I would avoid 4, as this seems to take control away from you.
Since they already offered you the option of a LLIF, tha twould seem to indicate that the money is available now, so she could convert the LRSP to a LIRA any time she wanted. But if you choose option #1, you goal would be to wait as long as poosible, not strat withdrawing as soon as possible. If that wa syour goal, just take LLIF or LIRA now.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Remember, all this income will be added on top of your US incoem, so your US taxarte on it will be your marginal rate, and the Cdn tax will only be credited to you at your EFFECTIVE rate, much lower.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Based on the info below, it seems my wife can open the LLIF now at age 52 if she chooses. The question becomes: Once she leaves the BC Pension Plan system and transfers to a LRSP, will the minimum conversion age (LRSP->LLIF) change to 55, 60, or 65? This answer is not very clear and can make a big difference in how taxes plays out.
Basically, her retirement plans are not currently set in stone, but she wants to retire at 55 and convert the LRSP->LLIF then. We don't want to get stuck having to wait for a higher age to convert, otherwise getting the LLIF now might be better option.
Also keep in mind that the US/CAN exchange rate is making things more attractive to collecting. The CanD is up 15% since the beginning of 2009, practically reducing the 25% treaty tax hit to 10%. Will the value of the US dollar be stronger on 4 years, basically negatting the tax savings by waiting?
Taking the LRSP path is always a no brainer, but does the LLIF make better financial sense at all?
"Age Requirements to Open a LIF
A former spouse of a pension plan member, who has received a portion of the member's pension benefits through a division of family assets pursuant to a marriage breakdown, can have a LIF when the spouse reaches age 55, or at the point in time at which the member could have commenced a pension under the terms of the pension plan. This is why the table showing Factor F has a reference to ages under 55."
Basically, her retirement plans are not currently set in stone, but she wants to retire at 55 and convert the LRSP->LLIF then. We don't want to get stuck having to wait for a higher age to convert, otherwise getting the LLIF now might be better option.
Also keep in mind that the US/CAN exchange rate is making things more attractive to collecting. The CanD is up 15% since the beginning of 2009, practically reducing the 25% treaty tax hit to 10%. Will the value of the US dollar be stronger on 4 years, basically negatting the tax savings by waiting?
Taking the LRSP path is always a no brainer, but does the LLIF make better financial sense at all?
"Age Requirements to Open a LIF
A former spouse of a pension plan member, who has received a portion of the member's pension benefits through a division of family assets pursuant to a marriage breakdown, can have a LIF when the spouse reaches age 55, or at the point in time at which the member could have commenced a pension under the terms of the pension plan. This is why the table showing Factor F has a reference to ages under 55."
The trustee of the LRSP will follow the same rules as the LIF -- if you are allowed to transfer.
Now, be careful, because, a I understand this alphabet soup, an LIF is actually an annuity, so, once started, you may have trouble moving it to an LRSP. An annuit has a starting date and that's that. I'll let you worry about that; I've given you teh princiles that I would follow.
Now, be careful, because, a I understand this alphabet soup, an LIF is actually an annuity, so, once started, you may have trouble moving it to an LRSP. An annuit has a starting date and that's that. I'll let you worry about that; I've given you teh princiles that I would follow.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
A couple last questions on this topic:
It appears that we are going with the LRSP(locked-in RRSP) option and have until the end of Feb 2010 to submit the transfer.
1. What are the tax/paperwork advantages to receiving the LRSP before or after Jan 1, 2010?
2. The US paperwork we need to file is IRA Form 8891 and US Treasury Form (TD F 90-22.1). Is there anything else to file while we wait for retirement?
3. Under the assumption we receive the RRSP BEFORE Jan 1, 2010, when are the first dates for filing 8891 and TD F 90-22.1?
4. Under the assumption we receive the RRSP AFTER Jan 1, 2010, when are the first dates for filing 8891 and TD F 90-22.1?
Thanks again for all the info.
This is a great site.
It appears that we are going with the LRSP(locked-in RRSP) option and have until the end of Feb 2010 to submit the transfer.
1. What are the tax/paperwork advantages to receiving the LRSP before or after Jan 1, 2010?
2. The US paperwork we need to file is IRA Form 8891 and US Treasury Form (TD F 90-22.1). Is there anything else to file while we wait for retirement?
3. Under the assumption we receive the RRSP BEFORE Jan 1, 2010, when are the first dates for filing 8891 and TD F 90-22.1?
4. Under the assumption we receive the RRSP AFTER Jan 1, 2010, when are the first dates for filing 8891 and TD F 90-22.1?
Thanks again for all the info.
This is a great site.
If you control the account anytime in 2009, you will include these inyour annual TD and 88912 filings, otherwise you will include them next year.
I know of know dis/advantage in starting it now or later.
I know of know dis/advantage in starting it now or later.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
I just wanted to save myself some paperwork.
I wanted to get some clarification or confirmation of the rules.
According to what I could find... by taking control of the LRSP after Jan 1 2010, I do not have to file a IRA Form 8891 till April 2011 and US Treasury Form (TD F 90-22.1) till June 2011. Otherwise I would have to start filing paperwork in 2010.
Also, I believe that we have to file a 1040 Schedule B line 7a and 7b? Is this correct?
I wanted to get some clarification or confirmation of the rules.
According to what I could find... by taking control of the LRSP after Jan 1 2010, I do not have to file a IRA Form 8891 till April 2011 and US Treasury Form (TD F 90-22.1) till June 2011. Otherwise I would have to start filing paperwork in 2010.
Also, I believe that we have to file a 1040 Schedule B line 7a and 7b? Is this correct?