401k Periodic Pension Payments 15%

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Danielle105
Posts: 11
Joined: Fri Jan 13, 2017 9:13 am

401k Periodic Pension Payments 15%

Post by Danielle105 »

I am still in the USA. I expect there will be a day when I will want to return to Canada and turn in my green card. I have no family members in the USA.

I expect I would keep my 401K with my former employer. (a large conglomerate)
At age 70 1/2 the plan states you have to start taking RMDs or go on a 20 years installment withdrawal, where they distribution is equal to the balance divided by the number of years.

I think either method would meet the Periodic Pension Payments intent and only have a 15% (Treaty rate) with holding. Can anyone confirm?
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

Yes.

IRS really doesn't have a great definition of "periodic", but those will definitely work.

However, always remember that 401(k)'s can be treated like connected income on your 1040NR, which, instead of being taxed at the 15% treaty rate (which is what the withholding will be), you can choose at year end to simply report it as income on page 1 and figure out the tax, you can take quite a bit of pension money before your average tax reaches 15%.

And you could do this any years you want, not even having to wait until 70.

Of course, your tax concern isn't with IRS. The Cdn tax will almost always be greater than your US tax on that income, but it is always a good idea to get it as low as possible in the source country, without too much effort.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
Danielle105
Posts: 11
Joined: Fri Jan 13, 2017 9:13 am

Post by Danielle105 »

Thank you for your reply. I also appreciate the additional information regarding the 1040NR.
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