Very late election for Roth IRAs?

This is our main tax information forum which deals with topics concerning Canadians living and working in the U.S., U.S. citizens contemplating working in Canada, and all aspects of Canadian and U.S. income tax and related adminstrative issues.

Moderator: Mark T Serbinski CA CPA

Post Reply
peer
Posts: 14
Joined: Thu Apr 28, 2016 11:26 am

Very late election for Roth IRAs?

Post by peer »

I moved from the US to Canada on a work permit in 2014, and recently became a permanent resident. The problem is I just discovered I was supposed to make a one-time election of my Roth IRAs when becoming a resident as described here:
https://serbinski.com/roth-ira-when-moving-canada

I have 2 Roth IRAs. One was last funded in 2011 and has remained untouched since that time. The second was created from a rollover of a 401k that had both a Traditional and Roth component, in 2017. My last contribution to that 401k was in 2012.

Questions:
(1) If I was supposed to make the election in 2014, I guess I'm screwed?
(2) Is it too late to transfer either of the Roth IRAs to another company (I'm thinking Wealthsimple, which I think is licensed for both US and CA)?
(3) Is it too late to gradually convert the Traditional IRA over to the second Roth IRA?
(4) Is it too late to change the holdings of either? The first Roth IRA is totally non-diversified and the second is composed of high-fee mutual funds. If possible, I'd move everything over to robo-advisors investing in ETFs.
nelsona
Posts: 17014
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

1, No, a ate election os fins, so long as you did not make a contribution as a resident,
2. Transfers do not constitute contributions, The trouble you might face is finding a willing US brokerage, since you no longer live in US.
3. Yes, this would have had to have been done before you left US
4. As long as your brokerage iis willing you can do what you want inside your roths.
I am taking my usual break from this site until May. Always too many tax-form specific questions at this time of year...
nelsona non grata. Non pro. Search previous posts. Happy Browsing :D
peer
Posts: 14
Joined: Thu Apr 28, 2016 11:26 am

Post by peer »

Thanks for the clear answers. That is super helpful.

It's too bad about (3). I was unemployed most of the year before the move, so that would have been the time to do it.
peer
Posts: 14
Joined: Thu Apr 28, 2016 11:26 am

Re: Very late election for Roth IRAs?

Post by peer »

I finally got around to filing the election in late 2020. Snail-mailed the Competent Authority Services Division as described here:
https://www.canada.ca/en/revenue-agency ... html#toc13

However, today I realized something else- which is actually described in the sections below the above, unless I'm misunderstanding them. Until that election has been received and accepted, the Roth IRA is basically just a brokerage account in the USA.

That means I should have been keeping track of the ACB going back to when I became a resident of Canada. Along with reporting dividends or any other automatic distributions. It would also be enough to push me from not needing to file a T1135, to having to file a detailed one, which would include reporting for a couple bank accounts. Going back 3 (or 7?) years.

That's a shock, and I haven't received any reply from my election mail. Do they let you know if it's accepted? Maybe I should send another one?

Even if they had accepted it, maybe I would still be on the hook for pre-2020 and should look at entering the VDP?
nelsona
Posts: 17014
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Very late election for Roth IRAs?

Post by nelsona »

Regardless of when the election was sent in, you did make a Cdn contribution to the Roth you formed when you rolled over 401(k) money to a Roth, after moving to canada, so you would have mentionned this in your statement.

Also, that Roth is subject not only to T1135 reporting, and always will, it alsoe requires you to pay yesr-over-year taxation on any income generated inside the Roth.

It is a mess, and the election won;t really get you out of it, for the second Roth.
I am taking my usual break from this site until May. Always too many tax-form specific questions at this time of year...
nelsona non grata. Non pro. Search previous posts. Happy Browsing :D
peer
Posts: 14
Joined: Thu Apr 28, 2016 11:26 am

Re: Very late election for Roth IRAs?

Post by peer »

Sorry if I wasn't clear, but it was a rollover of a 401k with Traditional/Roth components into a new Traditional IRA and a new Roth IRA. This random link on the internet seems to suggest that would be okay if I had made the election:
https://ca.rbcwealthmanagement.com/docu ... th+IRA.pdf

It's complicated though, because I also had a second independent Roth IRA, that was transferred a couple times before being combined with the Roth IRA from the 401k rollover. And none of that including the rollover happened until 4 years after I'd been a resident.

I did lay out everything in detail in my election letter- assuming they received it- with dates, account numbers, etc. Maybe they need some time to disentangle it.

Can you recommend a cross-border specialist at this late hour?
nelsona
Posts: 17014
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Very late election for Roth IRAs?

Post by nelsona »

Yes, if you kept the 401(K) and Roth401(k) funds segregated when you rolled them into an IRA and Roth, you are fine. That wasn't clear in your original post. You keep saying you rolled over a 401(k) to a Roth. You didn't, you rolled over the Roth401(k) to a Roth and a 401(k) to an IRA.

Those other transfers are unimportant for this issue. One doesn't even have to report newly created Roths that are funded purely from existing Roths, just the one(s) that were in existence on the day you arrived in Canada: Your original Roth, and your Roth401(k).

Obviously I'm not going to recommend anyone that is not running this board.
I am taking my usual break from this site until May. Always too many tax-form specific questions at this time of year...
nelsona non grata. Non pro. Search previous posts. Happy Browsing :D
peer
Posts: 14
Joined: Thu Apr 28, 2016 11:26 am

Re: Very late election for Roth IRAs?

Post by peer »

Thanks, I've submitted a request for a consult, though I'm not expecting that before April 30.

I think the key questions are (1) how I know whether my late election mailed on Dec 31, 2020 was received and accepted as valid, and (2) whether that absolves me from having to retroactively file T1135's and corrected returns (and payment on dividends) going back to 2014, which I would do under the Voluntary Disclosures Program.

For (1) I'm leaning towards mailing another less-verbose election, with no detail except the information they require. One issue here is that I think I made a calculation error and overstated the total balance of my Roth IRAs for the date I became a resident. The balances aren't stated anywhere on my old statements for that exact date, so I was estimating it based on fractional number of shares and share price.

For (2), it sounds like I'm okay, but only assuming my late election was considered valid and accepted.
nelsona
Posts: 17014
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Very late election for Roth IRAs?

Post by nelsona »

CRA International division will send you a letter acknowledging receipt and accepting (or rejecting) your election. I would not muddy the waters until you get the result of that first submission. The balances (you would have sent one for each Roth and Roth401(K) are not really crucial, so I wouldn;t be bothering to correct at this point.

Just make sure that you never made a Roth contribution after the date you put on your 2014 return, but if you did, you had better mention it.

But this should be donr after you get your letter back. No hurry here. 6 year or 6 years and two months, doesn;t make a differnce.
I am taking my usual break from this site until May. Always too many tax-form specific questions at this time of year...
nelsona non grata. Non pro. Search previous posts. Happy Browsing :D
Post Reply