keeping 401k and IRA after moving to canada

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nelsona
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Post by nelsona » Sat Jun 11, 2005 12:32 am

the investments in your Roth are treated like any other non-sheltered investment:

A dividend is immediately taxable, but if re-invested subsequently becomes part of the cost basis. So a fund valued at $1000 when entering canada, which subsequently has a reinvested dividend of $50 (taxable), and then grows to $1200 before being sold, would then generate a $150 cap gain (1200-1050).

Remember that all these taxable events occur whther or not you pull the money out of the Roth or not.

Treat this, for Cdn purposes, just like a normal run-of-the-mill brokerage account. You pay tax yearly on every profitable transaction, dividend, distribution, etc.

<i>nelsona non grata... and non pro</i>

mcmoxley
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Post by mcmoxley » Sun Jun 12, 2005 12:19 pm

Since Roth IRAs are given no tax preference when the account holder is a tax resident of Canada, does it make sense for a US citizen to convert a Roth IRA to a traditional IRA before taking up tax residence in Canada?

I am a US citizen in (hopefully) the final stages of gaining permanent resident status. I have significant IRA and Roth IRA assets. Can I move the Roth IRA assets into a traditional (nondeductible) IRA before I move so that the earnings are not taxed until I make withdrawals?

Making the earnings taxable defeats the purpose of the Roth, but they would be taxed anyway once I take up permanent residence in Canada.


nelsona
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Post by nelsona » Mon Jun 13, 2005 5:39 pm

second Q on this in 2 days.

You cannot convert a Roth to a Trad IRA. You can only re-characterize the contribution from the current and *maybe* the previous year.


<i>nelsona non grata... and non pro</i>

worryfreeinvestor
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Post by worryfreeinvestor » Thu Jul 07, 2005 11:42 am

Norbert, are you able to give orders from Canada to TD Waterhouse USA to trade securities within your IRA or is TD Waterhouse USA only happy to mail you statements in Canada? (What with Ameritrade taking over TD Waterhouse USA, and TD taking over Ameritrade Canada, I'm sure everything will get all screwed up for a couple or years forward anyway!)

Another question: although I think I know the answer, there's always something one does not consider. Suppose I am a Canadian citizen on a visa, have a 401(k), roll it into a IRA before returning to Canada, and then move back to Canada. However, I am not certain how long I'll be in Canada: maybe for the rest of my life and maybe just a year or two until I get another job in the US. In this case I think I should keep my IRA in the US, and not transfer it to an RRSP, because I cannot reverse that if I do get back to the US eventually - correct?

Following on, if I spend the rest of my life in Canada, am I still subject to US rules that require me to draw down the IRA starting at age 59 1/2 (or whatever it is)? If yes (as I assume) do I have to do a US tax return on this income or just Canadian?

Norbert Schlenker
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Post by Norbert Schlenker » Thu Jul 07, 2005 2:14 pm

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote"><i>Originally posted by worryfreeinvestor</i>

Norbert, are you able to give orders from Canada to TD Waterhouse USA to trade securities within your IRA or is TD Waterhouse USA only happy to mail you statements in Canada?<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
I can make trades, online or over the phone.

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">(What with Ameritrade taking over TD Waterhouse USA, and TD taking over Ameritrade Canada, I'm sure everything will get all screwed up for a couple or years forward anyway!)<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
I am not looking forward to it.

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">Another question: although I think I know the answer, there's always something one does not consider. Suppose I am a Canadian citizen on a visa, have a 401(k), roll it into a IRA before returning to Canada, and then move back to Canada. However, I am not certain how long I'll be in Canada: maybe for the rest of my life and maybe just a year or two until I get another job in the US. In this case I think I should keep my IRA in the US, and not transfer it to an RRSP, because I cannot reverse that if I do get back to the US eventually - correct?<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
I expect never to go back to the US and I still kept my IRA. My wife also has an IRA with Vanguard (the funds, not the broker).

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">Following on, if I spend the rest of my life in Canada, am I still subject to US rules that require me to draw down the IRA starting at age 59 1/2 (or whatever it is)? If yes (as I assume) do I have to do a US tax return on this income or just Canadian?<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
Yes, you're subject to the rules. The rules do not say you have to start withdrawing at 59 1/2; they just allow you to start withdrawing at that age without the 10% penalty applying. When you do take the funds, as long as the trustee knows that you're in Canada, they should withhold the treaty amount (15% for periodic payments) and you have no further obligation re filing or payment.

FWIW, it's a coincidence that I checked this site today and am responding to this message. I look here only rarely now, especially as Nelson is much faster and usually better at responding than I am. If you want to discuss this further, I'll keep checking back for a few days. After that, if you want me, better to contact me through my website at http://www.libra-investments.com or post an inquiry at http://www.financialwebring.com/forum.

totem13
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Post by totem13 » Tue Aug 02, 2005 2:41 pm

I am a Canadian working in the US and I have about $10k in a 401k. I plan to move back to Canada in January. Should I withdraw the $10k, paying penalties, etc, and invest as I see fit in Canada, or can I just transfer it to an RRSP at my new company?

nelsona
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Post by nelsona » Tue Aug 02, 2005 2:52 pm

Whether you simply take the money, or you take it and eventually put it in an RRSP, you will be liable for US tax and penalty when the money leaves your 401(K)/IRA.

And the 'transfer' to an RRSP (it is not a pure transfer) requires that you make up the tax loss to come out even at best.

You are likely better off simply taking the money early in the year you leave US so that you would pay as little US tax as possible, but before coming to Canada, so it is not taxed there.

The next best solution is to simply roll it to an IRA and leave it until you retire, as was intended.

<i>nelsona non grata... and non pro</i>

floid
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Post by floid » Mon Aug 08, 2005 11:49 am

Hello,

Not to flog the same horse here, but I'm in a similar situation as Totem 13 above. I'm leaving to return back to Canada (I'm a Canadian citizen) to work. I've TIAA-CREF investments as I currently work for an Academic institute in the amount of 6k. The information I'm reading is there's not an easy way to transfer this to a pre-existing RRSP in Canada. I'm also getting the vibe that I should just withdraw the amount, get taxed, and then end up putting it into my Canadian RRSP. It's not a vast amount, so at the moment I'm not likely to leave it where it is (who know's if we're returning to the U.S. or not at this point).

Just wanted to verify the information above,

Thanks for your time,

floid

nelsona
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Post by nelsona » Mon Aug 08, 2005 11:57 am

If you aren't planning to return to US, I would be taking it out of the US, just for simplicity.

If you intend to eventually put it in an RRSP, then the indirect transfer should be rather easy to accomplish, as long as you make $6000 in Cdn income the year you take the money from US.

You will pay US tax and penalty, but will be able to take credit for it on Cdn taxes, and put it in RRSP so nothing is lost overall.

It's larger amounts that are problematic.

I personally would put the cut-off around $30K. Any more than that and one should be looking at leaving it in US if at all possible, since the rollover does still require you to come up with a good chunk of up front tax, as well as a good Cdn income to make up the Cdn tax to be credited against.

Any less and one can consider the cashout or the complex rollover.

<i>nelsona non grata... and non pro</i>

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