Lump Sum US Pension transfer to Canada
Moderator: Mark T Serbinski CA CPA
Lump Sum US Pension transfer to Canada
I need to determine the most tax efficient way to do a lump sum transfer of my US Public Employees Retirement System pension to Canada. I'm 58 and eligible to start getting this pension, am a Canadian citizen with no employment income, but do get some dividend income. I think there will be a 20% withholding tax in the USA and will submit a W8Ben. But is there a way for me to get the withheld money back? The FTC has never helped me get any US withheld tax back as I've never had enough income. Also, can I chose if the money is transferred in US or Canadian dollars? Should I take some cash and also set up a US dollar RRSP? Will I have to file a US tax return? Thank you for your help.
I assume you are not a US citizen or green card holder.
From US point of view, you should be able to get the payment with 20% withholding (some may withhold 30%, but other than the temp loss of that income, that is not a big oconcern). You will then file a 1040NR and report the pension income, and calculate the tax, and get any overage back. Let's say it finally comes to 15%.
In Canada, you need to report all the income, and the tax will be credited to you.
But to make this as efficient as possible, you will need to put as much of these funds in an RRSP (it can be considered a transfer, so you do not need to have contribution room), even if you were able to put the entire amount in (including what was withheld), this would not reduce the credit that you can claim on your Cdn return for that US tax that you paid.
As to how you take the money, the rule of thumb is ALWAY make any currency changes in Canada). While you certainly can hold US dollars in an RRSP, generally you need to fund an account with Cdn funds, and then convert. But this would be something to discuss with an RRSP provider. Besides, holding cash in an RRSP at your age would not necessarily be a wise investment, but, again, that would be a discussion between you and your advisor.
But, certainly, take the money form the pension as USD, and bring to Canada. Then decide. Don't convert in US.
From US point of view, you should be able to get the payment with 20% withholding (some may withhold 30%, but other than the temp loss of that income, that is not a big oconcern). You will then file a 1040NR and report the pension income, and calculate the tax, and get any overage back. Let's say it finally comes to 15%.
In Canada, you need to report all the income, and the tax will be credited to you.
But to make this as efficient as possible, you will need to put as much of these funds in an RRSP (it can be considered a transfer, so you do not need to have contribution room), even if you were able to put the entire amount in (including what was withheld), this would not reduce the credit that you can claim on your Cdn return for that US tax that you paid.
As to how you take the money, the rule of thumb is ALWAY make any currency changes in Canada). While you certainly can hold US dollars in an RRSP, generally you need to fund an account with Cdn funds, and then convert. But this would be something to discuss with an RRSP provider. Besides, holding cash in an RRSP at your age would not necessarily be a wise investment, but, again, that would be a discussion between you and your advisor.
But, certainly, take the money form the pension as USD, and bring to Canada. Then decide. Don't convert in US.
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