I am 1 of 9 beneficiaries, (non designated beneficiary of an IRA) receiving approx $100,000 from an IRA that was part of a trust, from a recently deceased Uncle who was a US resident. I am Canadian and live in Canada. I have a vacation property and address in the US, as well as a US bank account. I am 57 years old.
1) What is the best way to minimize the taxes?
2) What would the witholding tax be?
3) Can it be rolled over into an RSP?
4) Do I have to claim the IRA payout as income in Canada and pay Canadian tax on it as a lump sum? Or is it recognized as an inheritance and tax free in Canada?
5) Can I transfer the IRA to an annuity and spread out the payments? I would like to keep it as a US income since I spend a lot of time in the US.
:)
Inherit IRA- tax implications
Moderator: Mark T Serbinski CA CPA
I'll answwer the questions that can be answered, and then look at question 1:
2: The withholding tax should be 15%, regardless of the withdrawal ammount.
3: Yes, but that would immediately incur the US tax, and would also incur Cdn tax, unless you had sufficient Cdn income to write off against it. Remember that inherited IRAs are required to begin required withdrawals within a year. But it is possible, and may end up being your first or second-best alternative.
4: It is taxable in canada when you make the withdrawl from the IRA. So, while the US tax will be 15%, expect a bit more from Canada. A lot more if you are still working.
5: Yes, the inherited IRA can be put in an annuity, the withdrawals will be taxable.
A BIG problem you will face is finding a manager that will deal with a Cdn resident.
I don't see the point of having this stream of US income just becuae you spend time there.
As you can see from my answer 4, an inherited IRA is not such a great gift for a Cdn resident who still has other income. I would be tempted to just take the lump sum, pay the 15%, and try to put as much as possible into my RRSP (it would not be subject to the RRSP contribution limits) and be done with it. Whatever you could not put in of the $100K would be taxable in Canada, and the entire $15K US tax would still be a credit.
If that doesn't work you ,Before accepting the IRA, I might be talking with the other heirs, to see if you should "disclaim" the IRA and leave it for the other 8. They could perhaps offer some incentive to do this, like, say $85K in cash from the other 8. Something to look into.
2: The withholding tax should be 15%, regardless of the withdrawal ammount.
3: Yes, but that would immediately incur the US tax, and would also incur Cdn tax, unless you had sufficient Cdn income to write off against it. Remember that inherited IRAs are required to begin required withdrawals within a year. But it is possible, and may end up being your first or second-best alternative.
4: It is taxable in canada when you make the withdrawl from the IRA. So, while the US tax will be 15%, expect a bit more from Canada. A lot more if you are still working.
5: Yes, the inherited IRA can be put in an annuity, the withdrawals will be taxable.
A BIG problem you will face is finding a manager that will deal with a Cdn resident.
I don't see the point of having this stream of US income just becuae you spend time there.
As you can see from my answer 4, an inherited IRA is not such a great gift for a Cdn resident who still has other income. I would be tempted to just take the lump sum, pay the 15%, and try to put as much as possible into my RRSP (it would not be subject to the RRSP contribution limits) and be done with it. Whatever you could not put in of the $100K would be taxable in Canada, and the entire $15K US tax would still be a credit.
If that doesn't work you ,Before accepting the IRA, I might be talking with the other heirs, to see if you should "disclaim" the IRA and leave it for the other 8. They could perhaps offer some incentive to do this, like, say $85K in cash from the other 8. Something to look into.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing 
1) I am interested in your response stating "try to put as much as possible into my RRSP (it would not be subject to RRSP contribution limits)"
Could you explain how it would not be subject to RRSP contribution limits? How do you go about accomplishing this?
2) Are you aware of a financial institution in the US that will deal with Canadians and put the IRA into a US annuity? Would you be double taxed by US & Canada on the withdrawals?
Could you explain how it would not be subject to RRSP contribution limits? How do you go about accomplishing this?
2) Are you aware of a financial institution in the US that will deal with Canadians and put the IRA into a US annuity? Would you be double taxed by US & Canada on the withdrawals?
The proceeds from an IRA can be put into an RRSP and is considerd a transfer, and not a new contribution.
There are some that will deal with you, I would not be using an annuity however. any us tx would be credited on your Cdn return
There are some that will deal with you, I would not be using an annuity however. any us tx would be credited on your Cdn return
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
My financial institution in Canada received my inherited IRA in March 2014 $97,000 US ($108,000 Cnd) minus $14,500 US withholding tax and placed it in an RSP. My income for 2014 will be $65,000. I have also contributed to my RSP from my regular income as I do every year, approx $12,000
1) Do I have to claim the whole amount of $97,000 US ($108,000 Cnd) on my 2014 Cnd income tax? Please explain "sufficient Cnd income to write off against it.' Please expand on this.
2) If I have to pay Cnd tax on it, then what is the purpose of having it in an RSP and then have to be taxed again when I withdraw it at a later date?
3) Do I need to file a US income tax for 2014?
4) The designated beneficiary of the IRA was the trust. Is it the trust that should pay tax on the IRA or the individuals who are beneficiaries of the trust
I may be retiring in 2016 so will have reduced income then. Thx for your help. :)
1) Do I have to claim the whole amount of $97,000 US ($108,000 Cnd) on my 2014 Cnd income tax? Please explain "sufficient Cnd income to write off against it.' Please expand on this.
2) If I have to pay Cnd tax on it, then what is the purpose of having it in an RSP and then have to be taxed again when I withdraw it at a later date?
3) Do I need to file a US income tax for 2014?
4) The designated beneficiary of the IRA was the trust. Is it the trust that should pay tax on the IRA or the individuals who are beneficiaries of the trust
I may be retiring in 2016 so will have reduced income then. Thx for your help. :)
Do you have sufficient contribution room for the entire 100K? As I said elsewhere, an RRSP transfer MUST be from an IRA that was funded by you (or your spouse).
Otherwise its a contribution.
That said:
1. Yes. the whole pre-tax amount.
2. Presumably, by the tax write-off you get (buy having the tax you paid on the rest of your income written off).
3. No, the tax withheld ws the final payment to IRS
4. Doesn't matter oyou, it is paid now.
You should have waited to take the money year-by-year.
You will also have to remove this money from your IRA, since it is not from your spouse.
Otherwise its a contribution.
That said:
1. Yes. the whole pre-tax amount.
2. Presumably, by the tax write-off you get (buy having the tax you paid on the rest of your income written off).
3. No, the tax withheld ws the final payment to IRS
4. Doesn't matter oyou, it is paid now.
You should have waited to take the money year-by-year.
You will also have to remove this money from your IRA, since it is not from your spouse.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing