Old age security with Roth income

[Gilgamesh]

As I understand Canada recognizes the tax free withdrawal of Roth. I am a dual citizen who may reside in Canada after retirement.

Question - is Roth income or social security factored into figuring out eligibility for Old age security?...how about ‘Guaranteed income supplement’?

If Social security is considered income, will the full SS payment be considered or 80% of it?

Question - is the 10 year residence rule (for old age security) after age 18 be contiguous. I lived for 9 years, could I become eligible after being back in Canada for 1 year?

Thank you!

[Gilgamesh]

Also, I just learned about the 10 year rule being fulfilled if I lived in a country with a ‘social security agreement’. I could not find the list. Is USA part of this ? I know USA/Canada has extensive Social security/CPP agreements etc., not too sure about this particular aspect. Even if USA is part of it, I know I will only get 9/40th of the full benefit amount, for the 9 years lived after age 18 in Canada.

[Gilgamesh]

Sorry, I don’t know how to edit my posts....the wiki page confirmed USA is an eligible country, so I should qualify for 9/40the of OAS.

I still don’t know whether/how Roth withdrawal and USA Social security payments affect OAC and GIS

Thanks!

[nelsona]

1. Unfortunately, for OAS clawback, the full Roth and SS income are included in determining if your are clawedback, since one must report the full income on the return, and then take the deduction on line 256. For GIS eligibility, according to the forms, the line 256 deduction is not considered either, so I would think that those incomes are included when making the determination.

Btw, the exclusion of SS is only 15, not 20%.

As to the eligibility for OAS, there are 2 minimums that one should be interested, the 10 year initial eligibility which allows you to collect reduced OAS while in canada, but also the 20 year eligibility which allows the reduced amount to be paid worldwide.
Both of these are satisfied by adding years in Canada and SS-contribution years in US. The SS years do not change the amount you would get, as you said.

One question is whether "waiting" to collect OAS after 65 (now an option, which increases your OAS amount for each year you wait), would also add years to your OAS account. if you have 10 year before 65 and wait til 70, would that give you 15 years, or only the 5-yr increase. I will look into this.

[Gilgamesh]

Nelsona

Thank you so much...

A follow-up question...are Canadian ‘tax-free savings accounts’ (TFSA) withdrawal income also considered for OAS and GIS? I am fairly certain Canada allows to “roll-over” Roth into TFSA (but not the other way).

With so many numbers and percentage, I miswrote the SS taxation percentage, thank you so much for correcting that.

Never thought of that...yeah, I’d be curious if each additional year after age 65 adds 1/40th to the basic benefit plus the 7.2% increase.

[Gilgamesh]

“Your federal income-tested benefits and credits such as: old age security (OAS) benefits, the guaranteed income supplement (GIS), or employment insurance (EI) benefits will not be reduced as a result of the income you earn in your TFSA or the amount you withdraw from your TFSA”

This is what I found by googling...I should google before posting. So, it looks like I can move funds from Roth to TFSA and any withdrawal from TFSA will not affect OAS or GIS.

I only have to make sure I don’t need to move it back to Roth. I’m hoping even if I decide to move back, I can still leave the funds in TFSA and USA will not tax it - but the worse case is I have to withdraw all of TFSA (no tax) and invest in taxable/brokerage.

[Gilgamesh]

Yikes!...on further reading it looks like I cannot go from Roth IRA to TFSA :(

[exPenn]

Regarding whether it is worth deferring the start of OAS from age 65 to age 70: If you would receive the full OAS at age 65, waiting until 70 would increase your OAS by 36%, i.e. 7.2% per year. However, to receive the full OAS requires 40 years of Canadian residency after age 18. If you have less than 40 years, deferring OAS will add to your residency, but you can't "double dip", i.e. you won't receive the 7.2% per year bump as well. Deferring will only produce a yearly increase of 1/40 = 2.5%. or 12.5% for the full 5 years. Hardly worth waiting for.

[nelsona]

There is no "rollover" of any sheltered accounts between US and Canada in either direction.

[nelsona]

exPenn, I don't believe either scenario is worth waiting for -- unless you are subject to clawback. But the double might be worth it

Curious where you got your information on not being able to double dip. If you are eligible (even with 10 weeks) you are allowed to wait and get the yearly bump.

And if you wait before applying, your years are only counted when you actually apply. They aren't calculated before then. And you do not have to 'advise' them that you are waiting. So I see know reason why you would not get both

Do you have some documentation on this?

btw, while adding a 40th year may not seem much, if you only have 10, adding another year is quite an increase in percentage terms, 10% increase in fact.

[nelsona]

I believe the yearly increase applies whether you are eligible for full OAS or not. You must merely be "eligible".

[nelsona]

exPenn, I am seeing some info on double dipping not being allowed. . months waiting to attain either full or extra partial eligibility aren't not counted towards the bump-up.
Thanks for that insight


there is also the "three for one" rule that needs to be considered. I will do some calcs on that.

[nelsona]

So, putting aside full eligibility under the 3 for 21 rule, for a moment.

Say one has 10 years at age 65. If he waits a year, he has the choice of taking the 7.2% bump up, or the 10% increase of the extra year. There is a rule of diminishing returns here, but at 10 years, waiting gets you 50% more at 70, than at 65. opting for counting the time as deferral only increases you 36%.

[nelsona]

The three in one rule only applies to those born before july 1 1952. One must now have lived 40 years in Canada after 18 to get full OAS.

So, when is adding a year better than the bump up? If you have less than 14 years of Cdn residency.

Now, that does not mean that it is better to defer than to take as soon as you can. deferral only pays off if you live to be older than 83 plus the number of years you deferred. But waiting to get 1-4 more years of eligibility would shorten that break-even age.

And of course if you didn't work/live in a totatilization country, waiting to get to the 20-year mark so that you are guaranteed payment forever may also be worth your while, if you intend to move away again.

[exPenn]

Now I can't find the reference. I know I read last year on a government of Canada website that if you had less than 40 years of residency in Canada at age 65, and if you deferred starting your OAS, then the deferred time (up to 5 years) would first be applied to your residency until you reached 40 years, and only after that would you receive the actuarial increase of 0.6% / month (7.2% / year). This would seem the logical way to do it. That reference has disappeared. I don't know if they have changed the rules or not. The closest I can find is the statement: "If you do not qualify for the full OAS pension, and do not want to WAIT UNTIL YOU DO, you may qualify for a partial OAS pension."

Looking at things percentage-wise can be tricky. My point was: with the current full OAS of about $600/mo, an extra year of residency only gives you an increase of 1/40 = $15/mo, whereas an extra year of bump up (at full OAS) would give 7.2% = $43.20/mo.

Of course, if you have less than 40 years, and you are not resident in Canada when you turn 65, deferring your OAS does not increase your years of residency, and I can't believe the government would give an advantage to you for living outside Canada, so I think the actuarial increase only applies once you have reached the full OAS.

That being said, I can't find any explanation or examples on either government or non-government websites of what should happen if you choose to defer with a less than full OAS.