Returning to Canada - Setting up annuities, receiving the funds, and taxes

[EnjoyTheJourney]

I'm trying to better understand how to withdraw funds from my US-based retirement account in a way that minimizes taxes paid, while living in Canada as a Canadian citizen.

My understanding from talking with a taxation expert is that periodic payments (which must be annuities of a period of 10 years or more, it turns out) would have 15% tax withheld by the IRS, with no tax filing needed afterward (and no partial reimbursement possible, it seems). If non-periodic payments are received then the tax withholding would be 30%, with no tax filing needed afterward (and no partial reimbursement possible, it seems). So, it looks like periodic payments via annuities is the most appealing way forward for receiving all funds in my US-based retirement account.

Apparently I would not be able to set up annuities with US-based firms after returning to Canada. So, I apparently need to set up an annuity ladder with my funds held in a US-based retirement account before leaving the country.

From another source it seems that annuities received from US-based institutions must be deposited in a US bank account. But, since I will be a Canadian citizen living in Canada, I am apparently not allowed to have a US-based bank account. Is it possible to (legally!!) designate another person / entity to receive the funds on my behalf in the USA, and then send that money to Canada? Is there another (legal!) way to manage this?

Any insights offered would be helpful and most appreciated.

[daverobev]

You're absolutely allowed a US based bank account. Non-Americans are allowed them. A specific bank may choose to not deal with non-US resident people, but it's not 'the law'.

Before you leave, you will want to set up anything you can - credit cards, savings accounts, everything - because it is usually opening that is the problem. So I'd say get a couple of checking accounts with different institutions, as backup.

Actually, there are 'true' US accounts able to be opened while resident in Canada - if the bank in question has both a Canadian and US outfit. I know both TD and RBC do 'cross border banking' - not the cheapest, but available.

Check the US-Canada double taxation agreement if you haven't.

[treffpunkt]

Make sure when you come back to Canada you submit the one-time election to the CRA to defer taxation of your Roth IRA if you have one; otherwise, the income it accrues after you're back in Canada will be taxable!

The amount in my IRA is low (< 150K) so my plan was to deplete it post 60 sporadically (so they don't look like periodic payments) in a way that would hopefully allow me to generate a large enough foreign tax credit to entirely offset the U.S. withholding tax (but not be too worried about it if that didn't work). This isn't super relevant to your case where it sounds like the majority of your retirement funds are in the US.

[EnjoyTheJourney]

Thank you for your responses. They are helpful.

It's true, and very helpful to know, that I can hold a US bank account as a non-American.

The key issue in play seems to be what constitutes a periodic payment. The CRA and the IRS have different perspectives on this issue, which can make things ... interesting for some. I'm still in the process of trying to decode what those differences mean and how they apply to particular payment steam choices.   

[Mighty Eyebrows]

So, I apparently need to set up an annuity ladder with my funds held in a US-based retirement account before leaving the country.

You will want to carefully review your annuity options to make sure you aren't getting junk. My understanding is that a simple SPIA has the least embedded fees and other hidden garbage. The US SPIA market is probably bigger and more competitive than what is available in Canada, and it would give you your required regular income. There are some good articles about using a SPIA to augment asset allocation in retirement.

For example, from Wade Pfau:
https://www.advisorperspectives.com/articles/2015/08/04/why-bond-funds-don-t-belong-in-retirement-portfolios

Warning: I am definitely not a cross-border expert.

[EnjoyTheJourney]

So, I apparently need to set up an annuity ladder with my funds held in a US-based retirement account before leaving the country.

You will want to carefully review your annuity options to make sure you aren't getting junk. My understanding is that a simple SPIA has the least embedded fees and other hidden garbage. The US SPIA market is probably bigger and more competitive than what is available in Canada, and it would give you your required regular income. There are some good articles about using a SPIA to augment asset allocation in retirement.

For example, from Wade Pfau:
https://www.advisorperspectives.com/articles/2015/08/04/why-bond-funds-don-t-belong-in-retirement-portfolios

Warning: I am definitely not a cross-border expert.

That is an excellent article. Your advice is also sound about how care is needed when picking annuities.

On that note, does anybody know how MassMutual is for loading (or not loading) up 10 period certain annuities with fees? I'm looking to purchase one and they seem to have a good mix of financial strength and an appealing payout for money spent.