IRA -> Roth - tax hit and survivor benefit question

[canuck_girl999]

I've been reading the threads concerning the IRA -> Roth IRA conversion and sure think it come in handy for my situation (canadian citizen, us resident).

However, a couple of answers would be great (once, of course, it's ratified by Canada).

1. Let's say I had $100K US in my traditional IRA. If I recharacterize that into a Roth IRA then assuming no other income, etc. does that mean an income of $100K for that year. And therefore tax payable on $100K?

2. Could I split the mythical $100K into 2 different recharacterizations like $50K first year and $50 second year?

3. Once the IRA is in the Roth IRA and I've waited 5 years and turned 59 1/2, could I then withdraw all the funds if I wanted to with no tax or hold-back of funds consequences in either US or Canada - if I was then a Canadian resident again.

4. Can I specify a Canadian as the beneficiary and then after the 5 years are up and I've turned 59 1/2, etc., does the Canadian beneficiary get the entire amount tax free, no withholdings, etc?

Thanks for any advice.

[nelsona]

1. Yes. This is called a recharacterization.
2. You can split it however you wish. In fact, since the recharacterization can only bring your gross income up to a certain level, most people MUST split it over several years.
3. Yes. The Cdn regulations have not been fianlized (they will by the time you are old enough) but Roth withdrawals made after 59.5 are tax and penalty free. Before 59.5 they are taxfree but not penalty-free (the grwoth portion is penalized)

4. Yes. But there may be ESTATE tax if you do this.

[rsargant]

Regarding item 1, I'm pretty sure the amount that is taxable depends on your traditional IRA basis.

If you've ever made any non-deductible contributions, that portion is not taxable when you recharacterize since you already paid the tax. Investment gains and deductible contributions are taxable.

You might want to take a quick look at this as well...

http://www.fivecentnickel.com/2007/10/1 ... s-in-2010/

[nelsona]

Indeed, any non-deductible contribution is not taxable when converted.

As brought out, there are 1000's of sites extolling the virtues and pitfalls of IRA and Roth. Here we deal with the cross-border aspects.