moving IRA from USA to Canada

[mariusz]

Hi

I'm moving to Canada from USA in December 2010. I will be a permanent resident in Canada. I have been living in Illinois for 10 years and working for the same company. My company has a profit sharing plan called defined contribution plan. Each year my company decided whether a contribution to the plan would be made.

Before I live United States I'm planning to open IRA account in USA and transfer money to it from my profit sharing plan when I'm eligible for a account balance distribution. And this will be in December 2011.

I know that I will have to pay taxes in USA after closing IRA but I'm not sure what will happen when I want to transfer money from IRA in USA to Canadian RRSP?

How this transfer is going to be taxed in Canada?
What happens if later, before reaching the retirement age in Canada I want to make some withdrawals from RRSP is this going to be taxed even when I already paid tax on it in USA?

Thanks

[nelsona]

While under a strict set of procedures, you can transfer the IRA to an RRSP, You will not be wanting to transfer the IRA. It will result in immediate taxation of 30%, 10% of which is penalty that will not be usable in canada. Also, you need at least the same income in canada as the amount you transfer for the tax credits to work.

Plan on leaving the IRA in US, and think about transferring the IRA to a Roth before leaving.

[ExpatAmerican]

I would agree with Nelsona. After transferring your DCPlan to the IRA, I see no real benefit to transferring it to an RRSP, it's costly. Be aware that when you leave for Canada, your IRA becomes quite difficult to manage. I no of no US firms that are licensed in the various provinces (a securities law requirement) to manage your IRA assets as a Canadian resident. This could preclude you from making any changes once you become a Canadian resident. Darrell Thompson at Macquarie Private Wealth Corp. in Toronto, has the necessary registrations in both countries and and specializes in servicing cross-border clients.

He can be reached at darrell.thompson@macquarie.com.

[mariusz]

Thank you or your posts.
How this is going to work when I will distribute money from profit sharing directly to a bank account in USA and than to a bank account in Canada.
After paying the tax in USA should I also add the amount of withdrawal to my income in Canada on my income tax return?

[nelsona]

Where the money is deposited is not a dtermining factor for taxation.

You take it out of the plan, it is taxable in US (and in Canada only if you live there). What you do with the cash after that has no bearing on taxation.

[mariusz]

Yes, at the time of withdrawal I would be a resident of Canada. Do you mean that I will have to pay the tax twice in both USA and Canada when I withdraw the money from the profit sharing plan and deposit them into my bank account? If yes, are there any tax credits to avoid double taxation.
Thanks

[nelsona]

Yes, canada will give you credit for the US tax.
You should recondider taking this money before leaving US.

[mariusz]

I can't take the money now. I will be eligible for distribution in December 2011 and I'm moving to Canada in December 2010.
I went to Citibank and tried to open Traditional IRA and I was told that in order to move the money from Profit Sharing Plan to IRA it has to be a Rollover IRA and I can't open Rollover IRA now, because the money are not available for withdrawal yet.
The guy also told me that if I want to open Rollover IRA next year while living in Canada, I will not be able to do that because my permanent residency will be in Canada.
What a headache!!!
Was he right?
Thanks.

[nelsona]

He was right that you cannot do anythingwith the money now. Which means you simply won't be puttng it in a Roth unless and until you move back to the US in the future.

However, for now you will simply have to either leave it with the current firm, or eventually find another broker that will deal with you after you've left US.

I'm sure expatamerican will suggest one....