Hi,
I've been reading about changes that were made that allow anybody regardless of income to convert a traditional IRA to a Roth IRA. I've been ignoring Roth's since Canada didn't recognize them as sheltered but it sounds like that may have changed?
Our income exceeds the income threshold for direct Roth contributions, however I've read about the strategy of using a non-deductible IRA as a holding ground for funds that may be converted in 2010. Apparently, if you convert in 2010 you don't have to pay any U.S tax until 2011, 2012.
Since it sounds like Canada now recognizes Roth's, I'm wondering if it is a sound strategy for us to do just that. We will be moving back to Canada in 2010 and can do the Roth conversion before leaving.
If I understand everything, the Roth is tax free (in both Canada and U.S) when we withdraw it (after 59 1/2), and after 5 years, we can take out the "rollover" amount tax free any time we need it. Could the funds be moved into an RRSP then?
It seems to me we will pay less tax in the long run if we do this conversion before leaving.
Converting an IRA to a Roth IRA before moving back to Canada
Moderator: Mark T Serbinski CA CPA
Sorry, I missed the "Leaving US, What should I do with 401K" post that answered most of the questions.
Any issues with the special 2010 rollover rules? 2011,2012 (after moving back to Canada)might be confusing because I'd want to claim the U.S tax as a foreign tax credit but have no U.S income. Is that even possible?
Might be best to just settle up with the IRS before leaving?
Any issues with the special 2010 rollover rules? 2011,2012 (after moving back to Canada)might be confusing because I'd want to claim the U.S tax as a foreign tax credit but have no U.S income. Is that even possible?
Might be best to just settle up with the IRS before leaving?
Non-deductible contributions to IRA will not be taxed in canada since they are not taxed in US.
You can always recharacterize trad IRA to Roth. I'm not up on the 'special' rules for 2010, but I don't see why this would pose a problem.
You can always recharacterize trad IRA to Roth. I'm not up on the 'special' rules for 2010, but I don't see why this would pose a problem.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
I would NOT be using the forward taxation provision before moving to canada. canada has very strict foreign tax credit rules, and insists that foreign tax be owed against foreign income from the same year.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
By the way, if you have non-deductible IRA contributions, these can ALWAYS be recharacterized tax-free into Roths, regardless of the year. That is the whole point of non-deductible IRA contributions.
Now, the growth would be reported as taxable for the rollover to Roth, but not the undeducted contrib.
Now, the growth would be reported as taxable for the rollover to Roth, but not the undeducted contrib.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Unless I've missed something, there's an income limit of $100 K you have to be under to recharacterize. It is true you can recharacterize non-deductible IRA contributions "tax free" but you can't do it before 2010 if you make more then $100 K.
As you suggest, I will pay all of the U.S tax on the conversion in 2010 before leaving. I don't even need to report any of that to canada right? I will be non-resident when I receive the rollover income.
The taxable amount won't be very high because it will be coming from non-deductible IRA contributions (and the market seems to be tanking in the short term :). My reason for wanting to spread it out is obviously that our marginal tax rate would be higher in 2010 because we'd have some U.S income prior to moving back. However since it sounds impossible to pay the U.S tax later and get credits it doesn't sound like it is worth it .
One more question, in later years, how does one even report a qualified distribution from a Roth to Canada? It's not taxed as income so is it reported at all?
As you suggest, I will pay all of the U.S tax on the conversion in 2010 before leaving. I don't even need to report any of that to canada right? I will be non-resident when I receive the rollover income.
The taxable amount won't be very high because it will be coming from non-deductible IRA contributions (and the market seems to be tanking in the short term :). My reason for wanting to spread it out is obviously that our marginal tax rate would be higher in 2010 because we'd have some U.S income prior to moving back. However since it sounds impossible to pay the U.S tax later and get credits it doesn't sound like it is worth it .
One more question, in later years, how does one even report a qualified distribution from a Roth to Canada? It's not taxed as income so is it reported at all?
It is true that 2010 is that the limit is removed. Of course any strategy involving conversion should be done in the year when you have little or no US income, like in Jauary before returning to Canada.
The Cdn rules for Roths have not been published yet, so it would be pointless to speculate. The treaty wording will govern.
The Cdn rules for Roths have not been published yet, so it would be pointless to speculate. The treaty wording will govern.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best