Canadian lives US, receiving Manulife account in divorce through a QDRO-what to do?

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AKgirl
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Canadian lives US, receiving Manulife account in divorce through a QDRO-what to do?

Post by AKgirl » 10 Nov 2017 08:51

I am new to investing and hopeful for some guidance as I try to teach myself along the way. In my divorce settlement, I am receiving our retirement Savings account we have with Manulife in Canada (approx. 80K US) as well as our retirement Savings account we have with Vanguard here in the US (470K). My understanding is that because I am receiving these accounts via QDRO's, if I reinvest all funds, there will be no tax penalties, so I would like to remove all funds from the Canadian account and reinvest in the US to make my tax life more simplified for my future. One of my biggest concerns is knowing who to invest with, other than Vanguard because I've read you should diversify who you invest with. Although I'm receiving some cash in the settlement (30K), I'm wondering if I should invest the entire Manulife Savings or keep some cash for emergencies, knowing that I'll be taxed but I'm at a lower tax bracket (not sure if that matters in this situation).

My background. I'm from Canada but have lived in the US for 11 1/2 years and received our green cards this past Fall. We made the choice for me to stay home and raise our kids while my husband worked away from home in the oilfield so I hadn't been in the workforce for 19 years. I'm now currently working a lower income job with no 401k's, ROTH's, IRA's etc. for myself as of yet. I'm in my mid 40's and just trying to ensure I invest my money wisely for my future, while also not leaving myself in a really tight spot financially every month.

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Re: Canadian lives US, receiving Manulife account in divorce through a QDRO-what to do?

Post by twa2w » 10 Nov 2017 12:22

I hate to be the one to tell you but AFAIK you will have withholding tax in Canada if you close out the RSP.
The QDRO should allow the bank or broker in Canada to move the RSP from your spouses name to an RSP in your name without incurring tax. But if you close out the plan, there will be withholding tax of 25%. You would claim the income on your US return together with a tax credit for the amount of tax withheld in Canada.

There is a complicated structure/ method of moving an RSP to a 401k and vice versa but it is not a smooth process and is difficult to get right. It may not be worth it for a low income earner.

You can leave the RSP in Canada but you will face a couple of issues. You may not be able to invest it and trade the way you like. You also have the issue with how the US IRS treats the RSP and you may have to file documentation to ensure you are not taxed on the growth within the RSP. I can't recall the form but others will chime in.

If you decide to leave the RSP here, when you convert to a RIF, and set up a periodic payment, these attract a witholding tax of only 15%. Again you claim the income on your US return as well as a credit for the tax paid. But in retirement this may be reasonable to do.

You could convert to a RIF now and take the funds in periodic payments over a few years and reinvest in the US but whether this is advantageous or not will depend on your tax rate.

There is a forum run by Serbinski that deals with crossborder issues. They are accountants that deal with these issues. www.forums.serbinski.com/ I think is the link.
You may try your question there as well.

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Re: Canadian lives US, receiving Manulife account in divorce through a QDRO-what to do?

Post by LadyGeek » 10 Nov 2017 16:06

Welcome again!

The OP has also posted this question in our sister US forum: What to do with Canadian/US Retirement accounts received in divorce settlement - Bogleheads.org

As noted by Valuethinker in the Bogleheads.org thread, it would help us understand your situation if you could try to post your info here using the My Portfolio: Seeking Advice format (Canada) or Asking Portfolio Questions format (US). Take your pick, or mix and match. It will make you think about the "big picture" while giving us the information we need to point you in the right direction.

There is a lot of information, take your time and do what you can. If you have any questions, ask them here (or the other thread).
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Re: Canadian lives US, receiving Manulife account in divorce through a QDRO-what to do?

Post by LadyGeek » 10 Nov 2017 16:12

twa2w wrote:
10 Nov 2017 12:22
There is a forum run by Serbinski that deals with crossborder issues. They are accountants that deal with these issues. www.forums.serbinski.com/ I think is the link.
You may try your question there as well.
Here's the link: Serbinski Accounting Firms - Canada / United States Tax & Accounting

(From: Cross-border and expatriate issues - finiki, the Canadian financial wiki, "External links")
Imagefiniki, the Canadian financial wiki 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.

AKgirl
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Re: Canadian lives US, receiving Manulife account in divorce through a QDRO-what to do?

Post by AKgirl » 21 Nov 2017 23:22

Sorry for my very delayed response. I've been trying to deal with the realization that being allocated this account is a far bigger headache then what I was lead to believe. I am now being told by Manulife that the LIRA can not be transferred to the US, that no one in the US will accept it. Also, Manulife is saying that I need to live in Canada in order to hold a retirement account with them. I've been told to find an advisor, possibly through Bank of America or Wells Fargo that might be able to transfer the funds into a retirement account in the US. Any direction as to an institution to talk to within Canada or the USA that can help direct me, as to where I can invest these funds, is greatly appreciated.

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Re: Canadian lives US, receiving Manulife account in divorce through a QDRO-what to do?

Post by AltaRed » 22 Nov 2017 00:29

Check with other Canadian brokerage institutions such as TD Direct Investing. All Canadian brokerages hold RRSPs for non-resident Canadians, so why not a LIRA. TDDI seems to be more cooperative than some, partly since they already have such a large US presence already. They may not want to deal with such a small account but it's worth a try.

Otherwise, maybe it is just better to collapse it, given its size relative to your other assets. Sometimes it just is not worth the trouble.
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