Roth IRA withholding tax

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Ebeth
Posts: 5
Joined: Wed Mar 17, 2021 12:21 pm

Roth IRA withholding tax

Post by Ebeth »

Hello,
I am a Canadian living in Canada, this year I started to withdraw from my Roth IRA, which was established when we previously lived in USA. I do not work in the USA anymore.
The financial institution that handles the Roth, withheld 15% tax on the amounts I have been withdrawing. I have completed a W8BEN form.

How do I get back the 15% tax?
Do I need to file a US tax return, if so which for form would it be.
A 1042-S form has been issued by the financial institution.

My Canadian accountant has advised that due to other investments, I do not have enough Foreign income to be able to claim the Foreign taxes (15% withholding).

Thanks your help.
nelsona
Posts: 16947
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Roth IRA withholding tax

Post by nelsona »

You need to file a 1040NR and get the tax back. It is not a foreign tax credit issue,

Are you sure that your Roth withdrawals are not taxable? Unless you are 59.5 and your Roth has existed 5 years, it is possible that some of it is taxable.

And remember to add the entire Roth withdrawal to your income in canada, and then exclude the portion that is non-taxable in US (and Canada).

Your accountant should have told you this, along with the need to have filed a Roth statement when you returned to Canada. If he did not, he is probably not the pro you should be having handle your returns.
I am taking my usual break from this site until May. Always too many tax-form specific questions at this time of year...
nelsona non grata. Non pro. Search previous posts. Happy Browsing :D
nelsona
Posts: 16947
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Roth IRA withholding tax

Post by nelsona »

If you meet the 59.5 and 5 year criteria, there should not be any withholding on your Roth withdrawals. It does no matter than you are in a foreign country. I suspect that you do not meet those requirements, meaning that you need to determine how much if any of the withdrawals are taxabale.

If done properly, you should be able to claim the money that YOU put in the Roth is tax-free. Then, the growth is taxable (until age 59.5)
I am taking my usual break from this site until May. Always too many tax-form specific questions at this time of year...
nelsona non grata. Non pro. Search previous posts. Happy Browsing :D
Ebeth
Posts: 5
Joined: Wed Mar 17, 2021 12:21 pm

Re: Roth IRA withholding tax

Post by Ebeth »

Hi thanks for the response.
I am over 59.5 and the Roth has been in place for over 5 years.
We did an Election to CRA back in 2010 when returned to Canada.

I have not contributed one penny to the Roth since we have been back and will not do so, only withdrawals from it.

The Roth withdrawal has been reported as income to CRA but then deducted on line 25600.

I will call the financial institution about the 15% withdrawal and ask them not to take it off but I think they won’t agree to this, if they don’t then i will have to file the 1040NR.
nelsona
Posts: 16947
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Roth IRA withholding tax

Post by nelsona »

Good job.
I guess you can think of the withholding as a forced savings plan, but, yes, push them on this.
I am taking my usual break from this site until May. Always too many tax-form specific questions at this time of year...
nelsona non grata. Non pro. Search previous posts. Happy Browsing :D
Ebeth
Posts: 5
Joined: Wed Mar 17, 2021 12:21 pm

Re: Roth IRA withholding tax

Post by Ebeth »

So do I have to pay tax to CRA on the growth of it since I have had it, ie from 2010 to now.
Thanks.
Ebeth
Posts: 5
Joined: Wed Mar 17, 2021 12:21 pm

Re: Roth IRA withholding tax

Post by Ebeth »

Sorry forgot to add to above response:

You mentioned "the growth is taxable (until age 59.5)"
is it all non taxable as long as you meet the criteria or only the amount you put into the Roth IRA?
Any growth over 59.5, is that taxable or not?
Thank you.
nelsona
Posts: 16947
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Roth IRA withholding tax

Post by nelsona »

None of it is taxable in US (and thus not taxable in canada), if the account was 5 years old and if you were over 59.5 when you took the money.
I am taking my usual break from this site until May. Always too many tax-form specific questions at this time of year...
nelsona non grata. Non pro. Search previous posts. Happy Browsing :D
Diddos
Posts: 2
Joined: Fri Mar 19, 2021 8:19 am
Location: VA
Contact:

Re: Roth IRA withholding tax

Post by Diddos »

nelsona wrote:
> You need to file a 1040NR and get the tax back. It is not a foreign tax
> credit issue,
>
> Are you sure that your Roth withdrawals are not taxable? Unless you are
> 59.5 and your Roth has existed 5 years, it is possible that some of it is
> taxable.
>
> And remember to add the entire Roth withdrawal to your income in canada,
> and then exclude the portion that is non-taxable in US (and Canada).
>
> Your accountant should have told you this, along with the need to have
> filed a Roth statement when you returned to Canada. If he did not, he is
> probably not the pro you should be having handle your returns.


how was the issue resolved?
Ebeth
Posts: 5
Joined: Wed Mar 17, 2021 12:21 pm

Re: Roth IRA withholding tax

Post by Ebeth »

Hi
Not sure yet, as just filed taxes, so will see what CRA & IRS respond with. I filed 1040NR and will call financial institution to see if they will cease to deduct the withholding on future withdrawals.
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