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Phil Hogan, CPA, CA, CPA (CO)
Cross-Border Tax and Investment Specialist
Happy Holidays to you!
I would like to check in with you before I decide to go through with a lump sum distribution of a rollover IRA that I still have in the States. I find myself being confused about how it will be taxed. Could I have your input and advice before I possibly have them issue a cheque before the end of this December?
I just recently had it recovered from abandoned accounts because there was a mix-up and they were not able to contact me. Now I’m thinking it is best to cash it out as I’m being told different things by different employees. One says I cannot keep it as is because I now live in Canada and another says it can stay there for a few years before it would be sent to abandonment again. Confusing and frustrating. I have also been told that I could roll it over to a different institution, but I’m thinking it’s best to just pull it? 😉
When you did my 2014 US final year exit taxes for me, when I moved back to Canada permanently and forfeited my green card, I’m pretty sure that you said I could probably just do a Form 5329 whenever I cash out this rollover IRA ( which used to be my cash account pension plan from XXXX), and not have to do a 1040NR. But now I can’t remember how exactly it will be taxed by the States. I understand the tax treaty would apply but I don’t recall what percent of tax the IRA will want, being that I will have no other US income and my Canadian income is minimal. I think you said I will need to do a Form 5329 and send a cheque to pay the 10% penalty for early withdrawal, but what percent would you advise that I have withheld on the distribution? The financial institution has told me they can do a minimum of 10%, but beyond that, they can do any amount.
Can you please give me a rundown on what will need to be done and how much withholding I should request in order to keep my taxes the most simplified?
Here are my details:
– continue to have no other ties with the States, other than this rollover IRA (value $2497.00)
– zero US based income
– Canadian based income will be under $10,000 for 2018
– rollover IRA is currently sitting in cash (not invested)
– do not meet substantial presence test for the States; have not spent more than a month in the US during last three years
ALSO, I have had a common-law spouse for one tax year: 2017. We broke up recently. If the relationship stays terminated beyond the 3 month waiting period that the CRA requires, we would no longer be considered common-law for the tax year 2018, and I would assume my tax related interactions with the IRS would not affect him, at all. But just in case, if we were to get back together within the three month waiting period and remained common-law, would my IRA distribution cause him to have any tax responsibilities with the States? He is Canadian born and has no ties with the States now, or in the past.
Thank you so much,
Good to hear from you, it’s been a while.
It should be fairly straight forward. As a non-resident of Canada they should withhold 15% and perhaps an early withdrawal penalty if applicable. If the amount in the IRA is under $2,500 the tax shouldn’t be significant.
Your spouse would also not have any US tax obligations assuming they are not a US person or receive US source income.
I would ensure they are only withholding 15% tax before any early withdrawal penalties.
Hope that helps.