I have been working in the US for about 12 years on TN visa. During that time I have severed ties with Canada and have been only filing US tax returns. In the US I have contributed toward a 401K and I also have a company pension plan that starts when I turn 65. In Canada I have RRSP as well as company pension from my former employer that starts when I turn 60. I am now 53.
I am being let go from the company. My last day with the company will be June 30. Around end of July I will be receiving a lump sum severance payment. I will continue to have a place in the US (renting) and I don't plan to establish residency in Canada as I plan to live abroad somewhere in Asia or maybe just traveling around for the rest of 2010.
I have the following questions:
1. For tax year 2010, is there any change I should be aware of in how I file US 1040? Will I still be considered US resident even though I only worked half year (181 days)?
2. I presume until I establish residency in Canada I don’t need to file Canadian tax return. Correct?
3. I am thinking of converting 401K into Roth IRA this year. Even though my income will be above 100K (salary + severance) in 2010, I understand that the income threshold restriction is waived for 2010 allowing me to do this. Correct?
4. If I convert 401K into Roth IRA in 2010, is the amount of conversion considered income in 2010? I would not convert if that is the case as I already have a high income in 2010 due to severance payment so the additional “income†related to 401K conversion would be taxed at a very high rate.
5. Related to question #4, the tax I have to pay in converting 401K (about $200,000) to Roth IRA, I understand that I can split into 2011 and 2012. Does this mean deferring paying the tax bill until 2011 and 2012 or does it mean taking $100,000 as income in 2011 and another $100,000 as income in 2012?
6. For future years (and I guess for 2010 since I worked 181 days), is it possible to retain residency in the US while not working? Physically I don’t plan to live in the US but it would be good to keep US residency status as I have my banks, credit cards, etc. there.
7. What is required (in terms of proof) to establish residency in a foreign country outside of Canada? I am thinking of living in Philippine but most expats who live in Philippine do not have permanent visa but merely leave the country every two months to reactivate their tourist visa. Is this a problem in terms of establishing residency status in a foreign country from Revenue Canada perspective?
Any insights in any of the questions above would be very much appreciated.
401K conversion to Roth IRA
Moderator: Mark T Serbinski CA CPA
To buy yourself some time in US, you should probably file I-539 for B2 status on your last day. Of course, by staying out of canada, you are foregoing any UI, but I guess your severance will take care of that.
You don't wnat to leave US right away as you need to do a lot of things with your accounts that wil lrequire you to be in US during the process. The B2 will give you 6 months.
You need to find an IRA firm that will deal with you asa non-resident (without spoofing an address in US), and long-term non-immigratns always face high scrutiny is they try to come back into country soon after leaving after such a long period in US.
"Travelling around", without establishinga home somewhere is a sure way to have CBP deny you entry.
1. Days of presence don't mattter whaen you leave. You are allowed to file 1040 full year in your last year of residence, evcen if you leave in january. You just have to make sure you report world income.
2. Correct.
3. Correct. If this is your plan, you MUST do this before becoming Cdn residnet or it is pointless.
4-5. I'll talk about this in your other thread.
6. Very difficult, but you absolutely need to establish a viable HOME elsewhere, in order to be allowed into US as a visitor. IRS will always accept a 1040 from you as long as you report world income, but you need to live elsewhere too.
7. Not froma Cdn perspective, as long as you do not re-establish ties in canada. But the problem is re-entry into US without a permanent home outside US.
You don't wnat to leave US right away as you need to do a lot of things with your accounts that wil lrequire you to be in US during the process. The B2 will give you 6 months.
You need to find an IRA firm that will deal with you asa non-resident (without spoofing an address in US), and long-term non-immigratns always face high scrutiny is they try to come back into country soon after leaving after such a long period in US.
"Travelling around", without establishinga home somewhere is a sure way to have CBP deny you entry.
1. Days of presence don't mattter whaen you leave. You are allowed to file 1040 full year in your last year of residence, evcen if you leave in january. You just have to make sure you report world income.
2. Correct.
3. Correct. If this is your plan, you MUST do this before becoming Cdn residnet or it is pointless.
4-5. I'll talk about this in your other thread.
6. Very difficult, but you absolutely need to establish a viable HOME elsewhere, in order to be allowed into US as a visitor. IRS will always accept a 1040 from you as long as you report world income, but you need to live elsewhere too.
7. Not froma Cdn perspective, as long as you do not re-establish ties in canada. But the problem is re-entry into US without a permanent home outside US.
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