Hello Everybody,
Thank you in adavnce for your help!
I have IRA account in USA and I'm immigrating to Canada. I know that a standard procedure would be the next: take money out of IRA, pay tax in USA, use that tax as a deduction in Canada, put that money into Canadian pension thus avoid taxation in Canada for now.
I heard that fresh Canadian immigrants are not taxed on their previous assets. So I was wondering if it's possible to do all that steps except placing that money into Canadian pension account. Thus I would get that money out of pension but will keep them and would use them for immediate needs that fresh immigrants might have. I.e. I take money out of US pension, use US tax as tax deduction in Canada but keep the money and avoid taxation in Canada.
Best regards,
Hennady.
PS: it was suggested to repost this topic to "tax" section, so I'm reposting it here.
US pension and immigration to Canada
Moderator: Mark T Serbinski CA CPA
"nelsona" will help. But for the moment, no, you do not have it right. If you take the money out of the IRA before going to Canada, you will have no Canadian tax liability on that withdrawal. Since you are not paying tax on that money in Canada, you cannot use the US tax as a deduction or credit in Canada.
The recommended procedure, if you can afford the US taxes now, is to convert the IRA to a Roth IRA **before** you move to Canada. After that point, do **not** add any more money to it. When you eventually withdraw the money from the Roth, both the principal (your balance now) and future earnings will be tax-free in both the US and Canada.
The recommended procedure, if you can afford the US taxes now, is to convert the IRA to a Roth IRA **before** you move to Canada. After that point, do **not** add any more money to it. When you eventually withdraw the money from the Roth, both the principal (your balance now) and future earnings will be tax-free in both the US and Canada.
The "conversion" of an IRA/401(k) to a Cdn RRSP is so frought with downside that it is not really recommended -- ESPECIALLY for US citizens, who will always have some economic ties to US (ebven if iyt is simply the collection os social security). The IRS taxrate for pensioners is quite low, so there is little chance that aformer US resident will see their IRA taxed more than their RRSP would be.
Besides, to use the deduction in canada, would require that one withdraw the IRA AFTER moving, and MORE IMPORTANTLY, would require that the person have AT LEAST that much Cdn income to write off the tax against, which would be unusual in a moving year, and -- if the IRA i big enough -- be unlikely in any other year either.
Also, you are having to outlay a huge tax withholding to IRS in the year you dmake this transfer,and need to come up wit hthe funds to ensure that you put into the RRSP what you took out of the iRA, which may be a cash-flow problem.
The only other reason one might consider moving the IRA would be if their managemennt form would not want Cdn clients (there are some). But this would be solved by moving to the many that do. US citizens are typically able to keep IRAs after moving away more easily that non-citizens.
So, for US citizens, the choice is really more along what rlb suggested.
Either leave it as an IRA, which is not bad, or convert to a Roth.
Given our posters seeming willingness to incur a tax bill this year, the Roh is a good suggestion, as long as the IRA not too big. Otherwisem, just leave it, since it is sheltered in both countries until you begin withdrawals.
So, just to correct any muisconceptions in the original post (and the one that was mis-posted on the immigartion side)>
1. the the money is in an IRA or RRSP, it IS shheltered from US and Cdn taxation.
2. To get credit for US tax on one's Cdn return, one must ALSO have equivalent Cdn income in that year. (ie there has to be cdn-source tax to write of fthe US tax against).
3. No US income generated before one's arrival in canada is taxable in canada.
Besides, to use the deduction in canada, would require that one withdraw the IRA AFTER moving, and MORE IMPORTANTLY, would require that the person have AT LEAST that much Cdn income to write off the tax against, which would be unusual in a moving year, and -- if the IRA i big enough -- be unlikely in any other year either.
Also, you are having to outlay a huge tax withholding to IRS in the year you dmake this transfer,and need to come up wit hthe funds to ensure that you put into the RRSP what you took out of the iRA, which may be a cash-flow problem.
The only other reason one might consider moving the IRA would be if their managemennt form would not want Cdn clients (there are some). But this would be solved by moving to the many that do. US citizens are typically able to keep IRAs after moving away more easily that non-citizens.
So, for US citizens, the choice is really more along what rlb suggested.
Either leave it as an IRA, which is not bad, or convert to a Roth.
Given our posters seeming willingness to incur a tax bill this year, the Roh is a good suggestion, as long as the IRA not too big. Otherwisem, just leave it, since it is sheltered in both countries until you begin withdrawals.
So, just to correct any muisconceptions in the original post (and the one that was mis-posted on the immigartion side)>
1. the the money is in an IRA or RRSP, it IS shheltered from US and Cdn taxation.
2. To get credit for US tax on one's Cdn return, one must ALSO have equivalent Cdn income in that year. (ie there has to be cdn-source tax to write of fthe US tax against).
3. No US income generated before one's arrival in canada is taxable in canada.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing 
rlb and nelsona, thank you very much for your reply! I started to investigate ROTH IRA option, hope I can use it efficiently.
Meanwhile a quick question about IRA to Canada directly. I forgot to mention that I,m not a US citizen so I do not really have ties with USA. So in case like mine, is it realistic to get refunded US tax in Canada if I immigrate to Canada. I.e. does immigration procedure give me any benefits? Can I simultaneously use US taxes as a deduction plus not pay Canadian taxes as fresh immigrant? If IRA-RRSP move before/after immigration can give some bonuses. Thank you!
Meanwhile a quick question about IRA to Canada directly. I forgot to mention that I,m not a US citizen so I do not really have ties with USA. So in case like mine, is it realistic to get refunded US tax in Canada if I immigrate to Canada. I.e. does immigration procedure give me any benefits? Can I simultaneously use US taxes as a deduction plus not pay Canadian taxes as fresh immigrant? If IRA-RRSP move before/after immigration can give some bonuses. Thank you!
As I said, if you take the money before moving, then you wouldn't report the income, so would not be able to get any credit. You have to report the income to get credit for the tax.
and doing it after the move can at best result in a zero tax result, which would be the same as leaving it in US, and you still need to have suffcient Cdn income.
and in eithr case, don't forget early withdrawl penalty in US.
What size IRA are we talking about?
and doing it after the move can at best result in a zero tax result, which would be the same as leaving it in US, and you still need to have suffcient Cdn income.
and in eithr case, don't forget early withdrawl penalty in US.
What size IRA are we talking about?
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
Forget the "fresh immigrant" concept. It doesn't apply in this case. This only applies to unaccrued capital gains, not pension income, whicjh what IRA funds are.
The IRA to RRSP move cvan be done anytime with the same tax consequences, even years after departure from US.
For the transfer to work, you will need at least 50K in Cdn income in the year that you make this transfer, which should not be a problem I would wait until your first full year in Canada to do this.
The IRA to RRSP move cvan be done anytime with the same tax consequences, even years after departure from US.
For the transfer to work, you will need at least 50K in Cdn income in the year that you make this transfer, which should not be a problem I would wait until your first full year in Canada to do this.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
Another great idea came to my head . Can I please get an advise if it,s going to work?
Am I able to withdraw every year from my US IRA amount that equal personal exemptions? Thus I would be able to claim foreign tax credit in Canada as I actually pay tax when take money out of IRA. At the same time I would be able to get US portion of the tax back through personal exemptions on 1040NR. So in several years my US pension peacefuly would migrate to Canada.
Is it going to work? Thanks!
Am I able to withdraw every year from my US IRA amount that equal personal exemptions? Thus I would be able to claim foreign tax credit in Canada as I actually pay tax when take money out of IRA. At the same time I would be able to get US portion of the tax back through personal exemptions on 1040NR. So in several years my US pension peacefuly would migrate to Canada.
Is it going to work? Thanks!
If you don't pay US income tax on the money, how do you get to claim foreign tax on your Cdn return? You don't, so no, this will not result in tax-free income. CRA doesn't allow a decution for money you get refundsed. Besides, IRA tax is a flat rate for non-US citizens, it is reported on the NEC portion of the 1040NR, not the regular part.
And, btw, periodic withdrawals of IRA are not eligible for roll-over into RRSP. Only lump-sum amounts.
And, btw, periodic withdrawals of IRA are not eligible for roll-over into RRSP. Only lump-sum amounts.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing