Canadian pension converted to Locked-In Retirement Account (LIRA) - tax implications for Canada/US dual ciitizen

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atown575
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Canadian pension converted to Locked-In Retirement Account (LIRA) - tax implications for Canada/US dual ciitizen

Post by atown575 » Thu Oct 26, 2017 7:04 pm

I am an American living in Canada for several years. I left my employer who was still offering a DB plan and now have to convert it into a LIRA. I have been looking online for US tax implications of this conversion, but haven't found anything. Has anyone done this or know if there are any tax implications? Total amount to be converted is about C$40k. Is this looked at similarly to a RRSP? Thanks

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LadyGeek
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Re: Canadian pension converted to Locked-In Retirement Account (LIRA) - tax implications for Canada/US dual ciitizen

Post by LadyGeek » Fri Oct 27, 2017 6:59 pm

Welcome! I don't have the experience to answer your question, but may I recommend you also ask this question in our sister Canadian forum: Financial Wisdom Forum?

They have an excellent wiki: Locked-in accounts - finiki, the Canadian financial wiki

Disclaimer: I'm a member of both forums.
To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

overthought
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Re: Canadian pension converted to Locked-In Retirement Account (LIRA) - tax implications for Canada/US dual ciitizen

Post by overthought » Sat Oct 28, 2017 7:05 am

I wasn't able to register at Financial Wisdom (my browser rejected it for lack of https support), so I'll give a bit of an answer here:

I was in basically the same situation a few years ago. As far as I understand, the IRS has recognized LIRA for what it is for a long time now and RRSP gained similar treatment in 2015 or so***. So you shouldn't expect any particular penalties as long as you declare the account properly every year in perpetuity.

Managing the LIRA portfolio is another matter entirely. My LIRA custodian told me that only a custodian licensed to operate in both US and Canada could honor buy/sell orders within the LIRA. But that claim may have been influenced by the incredibly fee-laden "self-managing portfolio" fund he was pushing. I need to do further research there, the darn thing hasn't grown at all in 3 years because the fees always seem to match growth.

(***) This is in contrast with TFSA and RESP accounts. Heaven help you if you own either of those, doubly so if you haven't been filing the significant tax paperwork the IRS requires every year.

As a general note: every US expat should become *very* familiar with IRS publication 54, which lists a lot of the gotchas and hoop jumping that are required to avoid tax problems.

DISCLAIMER: I am neither lawyer nor accountant!

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Re: Canadian pension converted to Locked-In Retirement Account (LIRA) - tax implications for Canada/US dual ciitizen

Post by LadyGeek » Sat Oct 28, 2017 8:03 am

^^^ Thanks! atown575 has asked this question in our sister Canadian site. See: Canadian pension converted to Locked-In Retirement Account (LIRA) - tax implications for Canada/US dual ciitizen I posted your reply there.

The wiki has additional info for US ex-pats: Taxation as a US person living abroad

The "External links" section has info relevant for Canada.
To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

atown575
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Re: Canadian pension converted to Locked-In Retirement Account (LIRA) - tax implications for Canada/US dual ciitizen

Post by atown575 » Mon Oct 30, 2017 4:53 pm

Thanks a lot! I fortunately do not have an RESP or TFSA in my name. I am concerned about the management of the LIRA funds. Please do let me know if you get more information on this.

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Re: Canadian pension converted to Locked-In Retirement Account (LIRA) - tax implications for Canada/US dual ciitizen

Post by overthought » Mon Oct 30, 2017 5:03 pm

atown575 wrote:
Mon Oct 30, 2017 4:53 pm
I am concerned about the management of the LIRA funds. Please do let me know if you get more information on this.
As luck would have it, there's actually a thread going on about that as we speak (I had the same question). It appears there are at least two usable brokers (Q-trade and TD Direct Investing), and both will let you invest in USD or CAD funds. No account fees, $9-10 CAD per trade. Everything is easier if you set it up before leaving, though!

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