Roth IRA issue

dp · Post by dp » Tue Jun 30, 2015 1:33 pm

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

nelsona · Post by **nelsona** » Tue Jun 30, 2015 1:50 pm

You will need to ask CRA if your first Roth will remain tax-free as you did not follow the rules.

Your second roth is DEFINITELY NOT tax-free, since you made what is known as a "Cdn contribution" to it. It wil be atxable year-after-year on the growth.
Also, the converted IRA was taxable in canada in the year you made it -- you were supposed to notify CRA of this conversion.

You are not in a good situation.

dp · Post by dp » Tue Jun 30, 2015 2:53 pm

Thanks for reply.

I did report the the converted IRA as my income on Canadian tax return.

If I close the second Roth, will it help? Should I still file the election?

nelsona · Post by **nelsona** » Tue Jun 30, 2015 3:09 pm

Closing the second roth will absolve you of any further issues with that Roth of course, but you will still need to pay tax for the years you held it. I would think you would still need to file the Roth statement for thse accoutns, as well as the first one.

nelsona · Post by **nelsona** » Tue Jun 30, 2015 3:13 pm

You also have to watch for the foreign reporting requirements. Had you filed the elections, Roth are exempt from foreign reporting, If you have not filed the election, of if you makea Cdn contribution, then your have to follw the foreign reporting rules (as well as pay tax).

Actually, when I think of it, since your second roth was made solely with Cdn contributions, you are not even allowed to make an election, so I wouldn't bother.

Just pay the back tax on the Roths, make the election for the old Roth, and report the accounts on revised T1135 for past years

dp · Post by dp » Tue Jun 30, 2015 4:20 pm

Thank you, Nelsona.