what to do with my retirement accounts?

[unicefjd2005]

Hi - my situation is a bit complicated as I am a non-US and non-Canada citizen living in the US & Canada for the past decade. I also became a permanent resident of Canada while I was in the US.

I have recently moved to Canada with the intention to settle here for the near to mid term. Since establishing residence in Canada, I have opened TFSA/RRSP accounts. While I was in the US, I also had Roth-IRA account opened and my 401k converted to a traditional IRA.

What makes things more complicated is that my fiancee is a US citizen. While our future plan is still unclear at this point, there is a possibility that I will move back to US with her or to a third country in the next 5-10 years. My specific questions are regarding to the best strategy for my retirement accounts from a tax-saving perspective while our next move is still uncertain:

1. Can I / Should I still contribute to my US Roth IRA as I may move to US in a few years? I have already maxed out TFSA contribution since its a fairly less-restricted investment vehicle.

2. Suppose we leave US permanently, is there anything I have to do with my Roth/Traditional IRA accounts to avoid cross-border tax? My plan is to continue to grow my investment in those Roth and traditional IRA accounts.

3. Given I am under a relative low tax bracket in Canada now because of a specific tax exemption I am eligible for, would there be anything I can do with my IRA accounts to take advantage the low rate? I am not sure how that would work. Early penalty needs to be considered but at the same time I am also a first-time home buyer so this is certainly an option too. My tax rate is expected to only go up after a few years.

4. If we leave Canada in a few years, what will happen to my RRSP account? What's the best contribution strategy now?

I have to admit I am a bit overwhelmed given so many options and possibilities. Looking for advices and resources that I can read on. Much appreciated.

[JGCA]

To answer your questions quickly

1) If you still reside in the US before you leave you should convert your IRA and 401(k) into a Roth this will allow it to remain tax free until you withdraw from it

2)The conversion into a Roth of teh above is the best solution while you still live in teh US


3) Do not think about taking money out of the IRA since it will result in a 30% tax of which 10% is a penalty and will not be offset with foreign tax credit the penalty cost is too high.


4) The RRSP does not have to be collapsed when you leave Canada and US will shelter its value at date you leave Canada any growth over this in the US is taxed, other countries too have similar treatries so check the treaty of another country it too will state what the taxability is of the RRSP growth.

[JGCA]

Another important point is that while you are in Canada with a US Roth do not contribute or take out any money from it since if you do the Roth will become taxable in Canada. Also under new rules you will need to disclose by April 30 11 to CRA that you have a Roth it is not taxable its only a disclosure requirement assuming you are in Canada in 2010.

[unicefjd2005]

Hi JGCA - Thanks for the reply. Much appreciated.

I already left US and moved to Canada. You mentioned Roth conversion - but doing so wouldn't lead to an early withdraw penalty and paying tax immediately (all my IRA contribution was pre-tax deductible)?

I guess my question is really how CRA views an IRA for Canadian resident who previously worked in the US, and how IRS treats IRA/RothIRA accounts for temporary resident who leaves the country.

Thanks again,

[nelsona]

Do NOT do roth contrib or conversion once in Canada -- leave as is.

You can of course take withdrawals from Roth, and they will only be taxable in Canada to the extent they are in US, and will maintain their tax-deferred and tax-free status.