IRA vs 403(b)

casey · Post by **casey** » Thu Apr 23, 2015 8:33 pm

I am a Cdn citizen currently a resident alien in the US. I plan to return to Canada within a year. Does anyone know if there is any future advantage to having funds in an IRA vs a 403(b), in terms of ease of managing the funds while resident in Canada and future taxation of distributions? I'm wondering if I should be considering a rollover

nelsona · Post by **nelsona** » Thu Apr 23, 2015 8:53 pm

What you need to determine is if your account manager will dela with you when you meove. You need to determine this now BEFORE leaving.
The type of account makes no difference in terms of Cdn and US taxes.

You might want to consider moving this to a Roth before leaving, paying the US tax now, and then having the account grow tax free forever bith for US and Cdn taxes.

But the first thing you need to find is a dealer willing to keep you after you move,

casey · Post by **casey** » Thu May 14, 2015 12:52 am

I emailed TIAA-CREF (who manage my accounts) and the response was that I will need complete of an attestation form in order to complete transactions within my mutual fund holdings when resident in Canada. I'll have to ask what on earth an attestation form is, but it sounds like keeping the funds with TIAA-CREF will be possible.

I have considered a rollover to Roth, but since I am returning to university while in Canada I am also considering withdrawing from my traditional IRA to help fund this (I will attend an institution on the US federal student aid list so some of my costs will be qualified educational expenses avoiding the early withdrawal penalty). AFAIK there is a 5 year waiting period after a Roth is established before early withdrawals can be made penalty free, but I could be wrong. A major factor in my decision will be whether IRA withdrawals by non-residents are subject to withholding tax and how much (I am concerned that while studying my income/taxes paid will be too low to be able to claim all of the withholding tax as a foreign credit). Any ideas?

nelsona · Post by **nelsona** » Thu May 14, 2015 7:28 am

IRA withdrawals by non-residents ARE subject to withholding 20% plus 10% early penalty.

You will only get these back when filing your return.

nelsona · Post by **nelsona** » Thu May 14, 2015 9:01 am

If the flat non-resident withholding is more than what you would pay as a regular taxpayer, then you could always filea regular 1040 and get all the regualr credits etc that US taxpayers get.

As to Roth, the money you put (after-tax) in is NEVER subject to penalty, even if you take it the next day. Its only the growth that could be penalized.

in any eent, you seem to be heading into a period of low taxation, so a roth conversion probably doesn't make sense right now.

casey · Post by **casey** » Thu May 14, 2015 9:56 pm

So early distributions from a traditional IRA to a non-resident are subject to 10% penalty even if they are used for qualified educational expenses? That's annoying.
I'm curious why a Roth conversion heading into a period of low taxation might not make sense. The reason I was considering it was that if I stop working mid year to return to school, my marginal tax rate in the year of the conversion would be lower, but I have nil financial background, so am I missing something important?

nelsona · Post by **nelsona** » Fri May 15, 2015 8:56 am

I didn't say they were liable for penalty, I said they would be withheld, just as they would be if your were a US resident. Please read my posts carefully.

You need to prove you don't owe the penalty (and therefore get it back) by filing a tax return -- always.