RPP rollover to Roth IRA

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Bubba Gums
Posts: 36
Joined: Tue Jul 15, 2014 7:20 am

RPP rollover to Roth IRA

Post by Bubba Gums » Sat Aug 15, 2020 11:35 am

I am considering withdrawing my RPP. I would transfer the distribution tax-deferred into my RRSP subject to the limits.

I would like to take the remainder and transfer it to a Roth IRA. I understand I will have 25% of the cash portion withheld as Canadian tax due. I understand I would report the cash portion on my US income tax return. I would offset the US tax liability with a foreign tax credit on the lump sum. I would rollover the full amount distributed (I would add back in the 25% with held portion from other funds). Is the RPP considered a qualified plan?

I would welcome any opinions or comments on this approach.

nelsona
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Re: RPP rollover to Roth IRA

Post by nelsona » Sat Aug 15, 2020 11:54 am

First, you may be able to rollover your RPP to an RRSP without limits, and without taxation. Check with your plan administrator.

Second, you cannot put more in your Roth IRA than your yearly limit, our Cdn RPP i(a) not considered qualified, (b) even if it were only after-tax contributions made to it could be moved over.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

Bubba Gums
Posts: 36
Joined: Tue Jul 15, 2014 7:20 am

Re: RPP rollover to Roth IRA

Post by Bubba Gums » Sat Aug 15, 2020 1:58 pm

I am subject to the Maximum transfer value limits. https://milliondollarjourney.com/how-to ... ue-mtv.htm

a) One may exceed the annual contribution limits to a Roth IRA by roll over. A roll over from a US pension (a qualified plan) to a Roth IRA is allowed if the amount is included in income. https://www.irs.gov/pub/irs-tege/rollover_chart.pdf

I understand that no foreign plan is a "qualified plan" under the IRS code. Notwithstanding, the treaty XVIII sub 12 states that "For the purposes of determining an individual's eligibility to participate in and receive tax benefits [i.e. a roll over contribution] with respect to a pension or retirement plan or other retirement arrangement established in and recognized for tax purposes by the United States [i.e. A Roth IRA], contributions made to or benefits accrued under, a qualifying retirement plan in Canada [a RPP] by or on behalf of the individual shall be treated as contributions or benefits under a generally corresponding pension or retirement plan established in and recognized for tax purposes by the United States." My insertions in brackets.

Does not the second part of the sentence suggest an equivalence between the treatment of a RPP and a US defined benefit pension?

b) The amount moved to the Roth would be after tax. I would include it in my income in the year it was received to match the timing for the Canadian tax paid (the 25% withholding). There is no avoiding the tax.

nelsona
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Re: RPP rollover to Roth IRA

Post by nelsona » Sat Aug 15, 2020 3:59 pm

No.
Even if it was a qualified plan (the treaty does NOT make plans qualified for this purpose), otherwise we would all have transferred RRSPs to IRAs and vice-versa. It simply isn't the case.

After-tax in this sense means after-tax CONTRIBUTION to your CDn plan, which this was not. Many qualified US pension allow participants to put after-tax money in their pensions. These could be rolled over.

Cdn RULES (not treaty) make foreign pensions (any foreign pensions, not just treaty countries) eligible for "transfer" into an RRSP without affecting contribution limits. US rules do not do the same.


Btw, as shown in the technical explanation of the treaty, the purpose of paragraph twelve is to determine eligibility to participate in a US plan, but at a reduced amount, if one is already Contributing to a CDn plan (cross-border commuters). It is not intended to equivalence all retirement plans.

You could request a PLR for your particular situation.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

Phil Hogan, CA
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Joined: Fri Jan 08, 2010 12:11 pm
Location: Victoria BC
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Re: RPP rollover to Roth IRA

Post by Phil Hogan, CA » Fri Sep 11, 2020 9:17 am

We're seeing lots of clients move back to Canada. Many had plans originally and now are finally making the move.

This resource may help:

https://philhogan.com/ira-401k-and-us-i ... dians-faq/
Phil Hogan, CA, CPA (Colorado)
Canadian and US Income Tax
http://www.hutcheson.ca/about-us/philip-hogan/
http://philhogan.com
250-661-9417
Victoria BC

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