Hello,
I'm a US/Canadian citizen living in the US since 1999 and planning a permanent move back to Canada in 2011. I currently have a 529 plan, Traditional IRA, ROTH IRA, 401k as well as some stock investments outside of a retirement plan. I would like to leave the 529 and other retirement investments alone, however, would like to understand the tax implications as a result of my move. Here are some questions:
1) Does Canada recognize the 529 plan as a qualified education savings plan? Are there any immediate tax implications? How about when it comes time to use it for my kids education expenses?
2) Can I maintain my ROTH & Traditional IRA without immediate tax implications in Canada? Since all contributions were after income taxes, once I retire, will the amounts I withdraw be taxable?
3) Once I establish residency in Canada and leave my US employer officially, I am eligible to rollover my 401k directly into a new or existing Traditional IRA. Does Canada recognize this as a qualified move without tax implications?
4) How are stock shares and options taxed in Canada? I'd like to hold on to some of them, but if the tax implications are very high, then I may exercise prior to leaving the US.
Thank you!
Dual Citizen Moving Back to Canada
Moderator: Mark T Serbinski CA CPA
1. No. You will need to report an pay tax in canada on the income it genreates yearly. No extra tax will be incurred when it is used later.
2. Yes. No special forms to fill. However NEVER contribute or rollover anything into the Roth while Cdn resident, as that will kill its sheltering in Canada right then. The Trad IRA will be fully taxable in US and canada, with canada giving credit for US tax paid. Be aware that some US brokerages do not like to maintain retirment accts for cdn residents. So you wan to nail down your current firms on this point BEFORE you leave, so that you can find one that is clearly OK with it.
3. Yes. the is a non-event in both US and canada.
2-3. Do realize however that you are likley going to face a higher taxrate when you withdraw these IRA/401(k) funds in canada than you saved putting them in. You may want to think about -- before coming to Canada -- rolling over as much Trad IRA and 401(k) funds into Roths (even itf that means staying in US a little while. You will pay US tax now on the rollover, but then these funds, along with your existing Roth will never be taxed by either IRS or canada in future. Something to think about.
4. As a Cdn resident, you should be moving your non-retirment accts to Canada at some point. For Cdn tax purposes, you stocks are re-zeroed the day you move, so the Cdn tax should not be a problem. This does mean you should sell any losing positions before coming.
Options, are different can of worms, which I'm not up to speed on, and there has been treaty changes that helped perople in your situation, but I haven't studied those. Generally you wnt to take all income before entering canada.
2. Yes. No special forms to fill. However NEVER contribute or rollover anything into the Roth while Cdn resident, as that will kill its sheltering in Canada right then. The Trad IRA will be fully taxable in US and canada, with canada giving credit for US tax paid. Be aware that some US brokerages do not like to maintain retirment accts for cdn residents. So you wan to nail down your current firms on this point BEFORE you leave, so that you can find one that is clearly OK with it.
3. Yes. the is a non-event in both US and canada.
2-3. Do realize however that you are likley going to face a higher taxrate when you withdraw these IRA/401(k) funds in canada than you saved putting them in. You may want to think about -- before coming to Canada -- rolling over as much Trad IRA and 401(k) funds into Roths (even itf that means staying in US a little while. You will pay US tax now on the rollover, but then these funds, along with your existing Roth will never be taxed by either IRS or canada in future. Something to think about.
4. As a Cdn resident, you should be moving your non-retirment accts to Canada at some point. For Cdn tax purposes, you stocks are re-zeroed the day you move, so the Cdn tax should not be a problem. This does mean you should sell any losing positions before coming.
Options, are different can of worms, which I'm not up to speed on, and there has been treaty changes that helped perople in your situation, but I haven't studied those. Generally you wnt to take all income before entering canada.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing 
On your response to number 3 (labeled 2-3) regarding the later taxation of my IRA/401(k) retirement withdrawals in Canada and the high taxation and the recommendation to rollover these amounts now to a Roth IRA, does your firm do multinational tax planning to understand the scenarios/implications?
If the recommendation is to roll to a ROTH IRA before I leave the USA, I suppose I would want to be sure that I would not be returning or would not/could not return in order to lower my tax burden?
Thank you
If the recommendation is to roll to a ROTH IRA before I leave the USA, I suppose I would want to be sure that I would not be returning or would not/could not return in order to lower my tax burden?
Thank you
I don't know what thios firm does or does not do, although considering they fashion themselves a cross-border tax specialist, I'm sure they do this.
Back to your question. Most tax experts advise almost anyone --ebven those who will alwys live in US -- to be moving their taxable pensions into non-taxable at the earliest possible stage. This applies doubly to someone contemplating moving to Canada, as post-departure trnasfer would in essence kill the non-taxability of your Roth.
Consider too, thta the longer you wait to roll over the roth, the more it will be taxable when you do roll it over.
So, I'm not sure what you mean when you ay that returning to US at some future date would lower your taxrate on your IRA: the IRA will be bigger at that point, and you do not know that the taxrate will not be higher than today.
Back to your question. Most tax experts advise almost anyone --ebven those who will alwys live in US -- to be moving their taxable pensions into non-taxable at the earliest possible stage. This applies doubly to someone contemplating moving to Canada, as post-departure trnasfer would in essence kill the non-taxability of your Roth.
Consider too, thta the longer you wait to roll over the roth, the more it will be taxable when you do roll it over.
So, I'm not sure what you mean when you ay that returning to US at some future date would lower your taxrate on your IRA: the IRA will be bigger at that point, and you do not know that the taxrate will not be higher than today.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing