I am a recent college graduate with a job offer in Canada. I have been contributing to my Roth for 3 years. What would you suggest I do if I accept the Canadian job offer?
1) If I close the account, would I not be taxed heavily and charged a fee for taking distributions before 59 1/2 or first home purchase?
2) Could I keep it open in Canada and contribute as a Canadian employee, and would this be a good idea?
3) If I keep a residency in the US, could I avoid these compications?
4) or If I move back to the US when I retire would the Roth still be non-taxible?
Thanks for the help.
Move to Canada
Moderator: Mark T Serbinski CA CPA
1. If you collapse it, you would only have penalties to pay on the portion over your contribution.
2. You can keep it open and contribute to it, but if you live in Canada the Roth is not sheltered at all, any income it generates is taxed.
3. You would not only have to keep A reidency in US, it would have to be your ONLY residence, ie. you would need to be coimmuting to Canada to avoid Cdn taxation on non-Cdn income including Roth.
4. Yes, but as I said, while in Canada the gains would have been taxed.
<i>nelsona non grata... and non pro</i>
2. You can keep it open and contribute to it, but if you live in Canada the Roth is not sheltered at all, any income it generates is taxed.
3. You would not only have to keep A reidency in US, it would have to be your ONLY residence, ie. you would need to be coimmuting to Canada to avoid Cdn taxation on non-Cdn income including Roth.
4. Yes, but as I said, while in Canada the gains would have been taxed.
<i>nelsona non grata... and non pro</i>
You CANNOT convert a Roth to a traditional. Period.
You can only recharacterize the the current (or last ) tax year's Roth contribution into a Traditional contribution.
I would be keeping the Roth at least until it reaches the 5-year mark, as then the penalties decline. I would be making sure than my investments are not going to genarate any monthly income, so that there will be little Cdn tax until I'm ready to cash our the Roth.
You are fortunate in that your Roth is pretty small, so the decision to close it down will be easier than if you had $150K in it.
But, if you plan to stay in Canada long-term, reducing the 'annoyance' factor of Roths might be to your advantage; depends how long you wnat to stay in Canada, and depends inf US and Canada can come to some agreement on Roths (which I have not heard).
I have written extensively here and elsewhere as to CRA's 'allowance' of tax deferral on Roths as long as you aren't cashing them in, but this is on a case-by-case basis, and still doesn't really remove tax on Roths, thus making Roths not that great for Cdns.
<i>nelsona non grata... and non pro</i>
You can only recharacterize the the current (or last ) tax year's Roth contribution into a Traditional contribution.
I would be keeping the Roth at least until it reaches the 5-year mark, as then the penalties decline. I would be making sure than my investments are not going to genarate any monthly income, so that there will be little Cdn tax until I'm ready to cash our the Roth.
You are fortunate in that your Roth is pretty small, so the decision to close it down will be easier than if you had $150K in it.
But, if you plan to stay in Canada long-term, reducing the 'annoyance' factor of Roths might be to your advantage; depends how long you wnat to stay in Canada, and depends inf US and Canada can come to some agreement on Roths (which I have not heard).
I have written extensively here and elsewhere as to CRA's 'allowance' of tax deferral on Roths as long as you aren't cashing them in, but this is on a case-by-case basis, and still doesn't really remove tax on Roths, thus making Roths not that great for Cdns.
<i>nelsona non grata... and non pro</i>