Returning to Canada

[rsargant]

We are Canadian citizens iiving&working in the U.S. I expect we will be returning to Canada within 2 years. Since moving down here, we've had two children who are U.S citizens. I just had a couple of questions about our tax situation after moving back.

1) We've avoided opening up 529 or RESP while living here recognizing that neither country respects the other's plans. After returning to Canada (permanently), I expect will open RESP's for the kids. There won't be any IRS reporting requirements related to us, but what about when the kids actually start receiving monies from the RESP? Will there be any complications there?

2) I read that we can continue to file a 1040(NR) to receive the child tax credit for the kids. Since we'd have no U.S income or taxes owing there is any benefit in doing that? The additional child tax credit is a refundable credit. If we did file, would we just report 0 income?

3) When would our children have to start filing 1040s?

4) We each have a Roth IRA and 401K. I know for certain that we won't be contributing anything to them after we're gone . My question is that after we have left, can we still access Roth contributions (not gains) that were made while resident in U.S penalty&tax free in both countries without messing anything up. If yes, I'd be even more tempted to pay the tax man before leaving and roll our 401ks into Roth's (via traditional IRA) to get a bit more "liquidity" to funds that we've managed to save while working here. i know there are holding periods on conversion but they are shorter then waiting until I'm 60 to get at the 401K.

Thanks for the answers in advance!

[nelsona]

1. There will be some reporting required, as well as income.
2. You can file a 1040 -- all Cdns can -- reporting world income. If you use 1116 to take credit for Cdn taxes, you should owe no US tax, and get $1000 per child credit.
3. When their income is above the threshold for a single filer.
4. You should be converting all your 401(k) to Roth BEFORE leaving. This will ensure that canada treat your Roth as it is in US: tax-free upon withdrawl.

This will mean a tax hit when you convert, but it will be worth it.

[rsargant]

Thanks.

Regarding #4, I'm definitely leaning that way . Still wondering about the contribution issue though. You can normally withdraw Roth contributions penalty free any time but would you still be able to do that while resident in Canada?

I wonder how that type of early withdrawal would even be reported to Canada.
In U.S you do it on Form 8606 Part III and from what I gather, you don't report the amount as income. From IRS website

[I]
You do not include in your gross income qualified distributions or distributions that are a return of your regular contributions from your Roth IRA(s). You also do not include distributions from your Roth IRA that you roll over tax free into another Roth IRA. You may have to include part of other distributions in your income. See Ordering Rules for Distributions , later.[/i]

[nelsona]

Any Roth withdrawal that is not considered income in US will not be considered income in canada.

A note attached to your Cdn return would be the simplest way.