Treatment of withdrawal of Non-Deductible IRA contributions

[rsargant]

If you make a non-deductible IRA contribution, when you withdraw it you only pax U.S tax on the % of the withdrawal that was deductible. I think that is calculated by taking the % of your total account that was non-deductible and you pay tax on the other portion.

Now say you made the non-deductible IRA contribution while you were U.S resident and then you move back to Canada and start withdrawing it in retirement. Wouldn't this scenario put you at a disadvantage with regards to Canadian taxation.

It seems like the entire amount would be taxable income in canada and you'd have less foreign tax credits to work with then you would had it been a deductible contribution. In othewords, you pay taxes twice. Once when you put it in the IRA, and again to Canada when you take it out.

[rsargant]

[quote="rsargant"]If you make a non-deductible IRA contribution, when you withdraw it you only pax U.S tax on the % of the withdrawal that was deductible. I think that is calculated by taking the % of your total account that was non-deductible and you pay tax on the other portion.

Now say you made the non-deductible IRA contribution while you were U.S resident and then you move back to Canada and start withdrawing it in retirement. Wouldn't this scenario put you at a disadvantage with regards to Canadian taxation.

It seems like the entire amount would be taxable income in canada and you'd have less foreign tax credits to work with then you would had it been a deductible contribution. In othewords, you pay taxes twice. Once when you put it in the IRA (US), and again to Canada when you take it out.[/quote]

[Carson]

Treaty Art XVIII(1) deals exactly with this issue: it says whatever is non taxable in the country of origin will also be taxable in the other country. You'll be fine.