# Dual Citizenship and Retirement



## Rowing2000

Hi Everyone:

I am a green card holder from Canada contemplating whether to get U.S. citizenship. My wife is concerned that if, for whatever reason, we have to return to Canada later in life (I'm 42, so retirement is a ways off), that we'll be at a disadvantage from a taxation perspective. 

Are there any Canada-US dual citizens who have moved back to Canada, but whose retirement savings are in the United States? Does the tax treaty that helps to prevent double taxation apply to retirement income?

Thank you for your insight.


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## Bevdeforges

I've moved your post over here to the Expat Tax section, since I think you may be able to get a few more perspectives on the issue of cross border retirement.

A couple questions first, however: is your wife a US citizen? or is she considering taking US citizenship along with you?

When you say "retirement savings" are you referring mostly to tax-deferred funds (like a traditional IRA and/or 401K), to a Roth IRA or to private retirement plans or personal savings/investments of some variety? (I'm just getting to retirement age, so I've been playing around a bit with some of the options.)

A couple of things I can mention:

If you return to Canada at retirement (and thus are no longer subject to US taxation except for US source funds), you'll be subject to a mandatory 30% withholding on withdrawal of any funds from a traditional IRA or 401K plan. You then file an NR tax return and any excess withholding is returned to you. As a US citizen, you can usually adjust the rate of withholding to suit your situation (at least that's what Vanguard told me).

And if you return to Canada, and your wife does not have US citizenship, you'll have to decide whether to file as married filing separately (thus only subjecting your own income to US taxation) or married filing jointly (in which case, your wife, who may not be subject to filing in the US will have to find a way to protect her income from double taxation). 

Just a couple of things to consider. There's lots more, but let's see if anyone else can help here.
Cheers,
Bev


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## Rowing2000

Thanks Bev,

Very helpful. And thank you for moving this to the appropriate thread. 

Yes, I was referring specifically to my 401k plan here. I am not sure yet if my wife will file for citizenship as well, and I'm sure that opens us up to all kinds of other issues. Any insight you have into that would also be appreciated.

One additional question: It sounds as though double taxation may still be something that we have to look out for—even with the U.S.—Canada tax treaty—when it comes to our retirement. I wonder how people manage to get around that.

Thanks again.


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## BBCWatcher

U.S. citizens are not ordinarily subject to withholding on their U.S. financial accounts. (And I know what you mean, Bev, about Vanguard. They sometimes get confused about that with overseas residents. Filing a W-9 with Vanguard should clear that up.) That's an underappreciated benefit of U.S. citizenship. The IRS doesn't pay interest on excess withholdings, and a 30% withholding rate exceeds the tax typically due.

However, I think Canadians are an exception. They would file a W-8BEN, and they'd claim treaty benefits which at least reduce the withholding rate. I've seen some conflicting information, though.

It appears that U.S. citizens are taxed 20% on qualified U.S. dividends (starting tax year 2013) while Canadians enjoy a 15% treaty rate. That's interesting.


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## Bevdeforges

When I talked to Vanguard about withdrawals from a traditional IRA, you get to pick your withholding if you are a US citizen (yes, including having 0% withheld - though normally you would want something withheld, simply to avoid having to file quarterly estimates - well, I would, anyhow).

But withdrawals from an IRA or 401K aren't considered "qualified dividends" I don't think. (Though maybe you were talking about dividends in another context anyhow.)



> One additional question: It sounds as though double taxation may still be something that we have to look out for—even with the U.S.—Canada tax treaty—when it comes to our retirement. I wonder how people manage to get around that.


The tax treaty does a reasonable job of eliminating double taxation, but in practice it can be tricky knowing just how to put the appropriate information onto the various tax forms to make sure you get full advantage of the treaty provisions. For the most part, the IRS gives you two ways to avoid double taxation: either the FEIE (which applies only to "earned income" - primarily salary and similar payment for work done), or the foreign tax credit, which can get complicated because you have to match the taxes paid to the income that generates the tax. 
Cheers,
Bev


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## maz57

Bear in mind that if you acquire US citizenship and later decide to return to Canada you will face a lifetime of US filing obligations even if you are no longer a resident there. While it's true that the treaty goes a long way towards preventing double taxation, it's not perfect. Retirement type investment options available to most Canadians will be fully subject to US tax and not worth the trouble. Even if you didn't actually owe tax to the IRS, the complex forms that need to be submitted every year can be daunting. And you can kiss any financial privacy goodbye. The penalties for mistakes or omissions can be quite high. The only way out of all that would be to renounce US citizenship so why go there in the first place.

At 42 years of age you presumably have 20+ years before actual retirement. A great deal can change during that time and is totally unpredictable except to say the situation probably won't improve. Depending on your net worth at the time of retirement and return to Canada you could be subject to the exit tax if you wanted to renounce. US citizenship is fine if you live in the US; not so hot if you don't. I don't really see what you could gain by becoming a US citizen except the right to vote. You already have the right to do pretty much everything else.

Phil Hodgen has a great website that has extensive discussion of these sorts of issues.

Hodgen Law (Not sure if it's OK to link to a law firm, but that site is a valuable resource for those who want to educate themselves.)


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## Nononymous

Ditto. I personally would not touch US citizenship with a very long pole, unless you have no intention of returning to Canada, or there is some strong financial case for doing so (e.g. some complex manoeuvre to do with retirement savings, about which I freely admit to knowing nothing).


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## BBCWatcher

I think it would be useful to know why the original poster wants U.S. citizenship. If, for example, U.S. citizenship would allow him to boost his earnings significantly, many/most of these potential objections are moot. (Accountants become inexpensive with enough additional income and wealth.) Taxes and tax filing are not everything: the after-tax income and wealth are more important.

I would also point out that the U.S. has some very nice retirement savings vehicles which are treaty protected, notably the Roth IRA.


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## Bevdeforges

I knew by putting this query here in the tax section that we'd get responses from the "renunciation" crowd - but it is one angle that should be considered.

When living in the US, the issue of taking citizenship is pushed pretty heavily, for any number of reasons. It doesn't really make sense if you are planning on returning to your home country, since there's that lifelong tax obligation. But to the extent that it makes life easier for you and your intention (at least) is to remain in the US, it's definitely worth considering.

From my experience, I have to say that should you retire outside the US it seems to make the most sense to leave your US retirement funds in the US and simply draw on them from wherever you are. As noted by others, the financial reporting for the US is probably the most complicated of the lot - though just about all the OECD countries (and yes, that includes Canada) have some sort of reporting of "foreign accounts" requirement.
Cheers,
Bev


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## BBCWatcher

I don't understand how it's possible for someone from afar to fully understand the pros and cons of another person's naturalization decision. "It depends." If, for example, U.S. citizenship means a $50 million lifetime earnings increase as a more successful, obstacle-free Hollywood screenwriter and producer (perhaps with an Oscar or two)...well, that $50 million will buy a lot of accounting services, won't it?


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## Nononymous

That would fall under "strong financial case for doing so".


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## Rowing2000

Thank you for all of the great advice. There are certainly many dimensions to this question, and all of you have provided me with some serious food for thought. My reason for considering naturalization is not primarily financial, but rather personal. I have been in the United States for pretty much my entire working life, and I have come to self-identify more with this country than my home country. (Which is saying something, given that I was a Canadian Olympian.) As far as I am concerned, I am here to stay. My wife, on the other hand, doesn't feel quite so strongly and she has been informed by others about the tax disadvantages should we ever return home.


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## Nononymous

Well there you go. If you're planning to stay forever, having citizenship certainly won't hurt. If you're planning to return, it could be advantageous or disadvantageous, depending on the tax/retirement situation (if all your savings are in the US, not having citizenship may not substantially reduce your annual paperwork anyway).

There are however plenty of folks like myself, with little connection to the US, who used to think dual citizenship was a minor convenience until they realized what it really entails (should one elect to comply, which is another story); now I see it as more of an albatross.


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