My wife, a dual citizen, was a non resident of Canada for the past few years. During that time she established a Roth IRA (on her US earned income). Her last contribution was in Novermber, 2012.
However, last year she established herself as a Canadian resident and the Canadian organization that she works for sent the CRA a tax return for the year 2012, though no taxes were paid as she hadn't earned anything that year.
This was all done before we knew about the Roth IRA rules. She didn't send in a letter of election AND she contributed to the Roth IRA in November 2012...technically when she was a "Canadian resident."
So now we understand the problem and wondering what we can do about it.
Would CRA accept an election letter for the Roth IRA if sent this year?
Can we pull the amount contributed in 2012 out of the Roth IRA and the remainder would be treated as a Roth IRA for the upcoming years?
New Canadian resident: Mistake made concerning Roth IRA
Moderator: Mark T Serbinski CA CPA
Sigh. So much to learn.
Nelsona, what do you say to the this quote I found at http://www.answers.com/topic/roth-ira#ixzz2hUilzEby
"However, where an individual makes a contribution to a Roth IRA while they are a resident of Canada (other than rollover contributions from another Roth IRA), the Roth IRA will lose its status as a "pension" for purposes of the Treaty with respect to the accretions from the time such contribution is made. Income accretions from such time will be subject to tax in Canada in the year of accrual. In effect, the Roth IRA will be bifurcated into a "frozen" pension that will continue to enjoy the benefit of the exemption for pensions and a non-pension (essentially a savings account) that will not."
Nelsona, what do you say to the this quote I found at http://www.answers.com/topic/roth-ira#ixzz2hUilzEby
"However, where an individual makes a contribution to a Roth IRA while they are a resident of Canada (other than rollover contributions from another Roth IRA), the Roth IRA will lose its status as a "pension" for purposes of the Treaty with respect to the accretions from the time such contribution is made. Income accretions from such time will be subject to tax in Canada in the year of accrual. In effect, the Roth IRA will be bifurcated into a "frozen" pension that will continue to enjoy the benefit of the exemption for pensions and a non-pension (essentially a savings account) that will not."
To simplify, the value of the account just before the Cdn contribtion becomes the only portion that can be withdrawn tax-free (along with the contributions). All gains, interest etc, become taxable.
Wh ydon't you just read the CRA's instructions. No silly terms like bifurcation.
If you made a Canadian Contribution to a Roth
IRA, the Election is no longer valid and all subsequent
income earned or accrued in the Roth IRA after that time
should be reported in your Canadian income tax return
as required by the Act (see discussion in section 1
above).
Section 1 states: pay as you go.
Wh ydon't you just read the CRA's instructions. No silly terms like bifurcation.
If you made a Canadian Contribution to a Roth
IRA, the Election is no longer valid and all subsequent
income earned or accrued in the Roth IRA after that time
should be reported in your Canadian income tax return
as required by the Act (see discussion in section 1
above).
Section 1 states: pay as you go.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing 
As far as I understand, according to the IRS my wife will be able to withdraw from her Roth IRA up to the amount contributed without penalty.
The contribution amount that she has given up to this time is actually higher than the assets presently in the Roth (there is a net loss at this time). So as far as I can tell, she can already withdraw the money and shut down the Roth IRA without any penalty.
We are thinking of doing this to simplify our tax return in the future.
We will also be doing the same with her IBonds once the mandatory holding year is up. Though IBonds are getting a good return it will make things simplier to have it in gaining interest in a different vehicle.
Am I seeing things correctly?
The contribution amount that she has given up to this time is actually higher than the assets presently in the Roth (there is a net loss at this time). So as far as I can tell, she can already withdraw the money and shut down the Roth IRA without any penalty.
We are thinking of doing this to simplify our tax return in the future.
We will also be doing the same with her IBonds once the mandatory holding year is up. Though IBonds are getting a good return it will make things simplier to have it in gaining interest in a different vehicle.
Am I seeing things correctly?
Nelsona,
I moved back to Canada in 2010. I have a Roth IRA account opened in 2002 when I was working in the States. I did not know about the Roth IRA election until recently. Thus, I did not file the election. In 2013 and 2014, I converted some traditional IRAs to Roth IRAs in another institute, i.e. I did not add money to the 2002 account, but opened a new Roth IRA account. So, I have two kinds of Roth IRA accounts: the first one was opened in 2002 and the second one was opened when I was in Canada.
I would like to confirm: The distribution form the first account will still be tax-free in Canada if I file the Roth IRA election now.
Is there any penalty to file late Roth IRA election?
Thank you for your help.
dp
I moved back to Canada in 2010. I have a Roth IRA account opened in 2002 when I was working in the States. I did not know about the Roth IRA election until recently. Thus, I did not file the election. In 2013 and 2014, I converted some traditional IRAs to Roth IRAs in another institute, i.e. I did not add money to the 2002 account, but opened a new Roth IRA account. So, I have two kinds of Roth IRA accounts: the first one was opened in 2002 and the second one was opened when I was in Canada.
I would like to confirm: The distribution form the first account will still be tax-free in Canada if I file the Roth IRA election now.
Is there any penalty to file late Roth IRA election?
Thank you for your help.
dp