Finiki, financialwebring's wiki, states:
[quote]A very recent revision to the US-Canada tax treaty exempts income and gains inside a Roth IRA from Canadian taxation. However, withdrawals from Roth IRAs - tax free in the US under most circumstances - are taxable in Canada.[/quote]
However, what I have understood elsewhere is that Roth IRA's withdrawals (distributions) would not be taxed at all no matter the gains or income (if election was filed and contributions weren't made after Canadian residency).
Is this a mistake in finiki or have I misunderstood?
Roth IRA's withdrawals taxed in Canada?
Moderator: Mark T Serbinski CA CPA
Don't have an answer for you, but your post raises another question: If Canada is not taxing gains inside a US Roth IRA, why is the US still taxing gains inside a Canadian TFSA? I don't understand why Canada would allow this change in the Tax Treaty without negotiating similar treatment for TFSAs which are similar to Roth IRAs (no tax deduction on contributions, but tax sheltered gains within the plan).
Rest assured that CRA will not tax either the gains nor the principal in a Roth, as long as you follw 2 rules. Submit the Roth statement that CRA has requested, and NEVER make a Roth contribution while a tax resident of Canada.
See the CRA website for the procedure (which should have been follwed last year if you lived in Canada).
As to TFSa vs Roth? Pretti simple, Canada did not make the TFSA rules close enough to the Roth. 1. One is allowed to take the money anytime (roth requires waiting and has an age requirement. 2. TFSa allows for REDEPOSITING funds that were withdrawn.
Both these aspects make Rothe UNLIKE TFSA's. Canada's mistake really.
TFSA'a were ill-concieved from the statrt. Recall all the changes they had to make when some found loopholes and made millions tax-free?
See the CRA website for the procedure (which should have been follwed last year if you lived in Canada).
As to TFSa vs Roth? Pretti simple, Canada did not make the TFSA rules close enough to the Roth. 1. One is allowed to take the money anytime (roth requires waiting and has an age requirement. 2. TFSa allows for REDEPOSITING funds that were withdrawn.
Both these aspects make Rothe UNLIKE TFSA's. Canada's mistake really.
TFSA'a were ill-concieved from the statrt. Recall all the changes they had to make when some found loopholes and made millions tax-free?
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
I think its a mistake. How can "income and gains " be exempt from tax but withdrawals always be taxed? Its pretty difficult to access your tax exempt "income and agains" without withdrawing it.
I believe the treaty states that Roth IRA withdrawals are taxed by Canada consistently with the U.S taxation. So, you figure out how the U.S would tax the withdrawal (a challenge unto itself given the complexity of Roth IRA withdrawal ordering rules) and assume Canada will do the same.
Income/Gains are the LAST thing to come out of your Roth IRA. The following would apply when you withdraw them..
-If you take a non-qualified distribution (withdrawal) of income/gains before 59.5, the withdrawal will be taxable in Canada since it would be taxable in U.S. You can use foreign tax credits to avoid double tax.
-If you take a qualified distribution of income/gains after 59.5, it ultimately isn't taxed by either country. There will be withholding done by the U.S trustee but you would file in U.S to get it back.
That is my understanding of the situation.
I believe the treaty states that Roth IRA withdrawals are taxed by Canada consistently with the U.S taxation. So, you figure out how the U.S would tax the withdrawal (a challenge unto itself given the complexity of Roth IRA withdrawal ordering rules) and assume Canada will do the same.
Income/Gains are the LAST thing to come out of your Roth IRA. The following would apply when you withdraw them..
-If you take a non-qualified distribution (withdrawal) of income/gains before 59.5, the withdrawal will be taxable in Canada since it would be taxable in U.S. You can use foreign tax credits to avoid double tax.
-If you take a qualified distribution of income/gains after 59.5, it ultimately isn't taxed by either country. There will be withholding done by the U.S trustee but you would file in U.S to get it back.
That is my understanding of the situation.
rsargent is correct upto a point. The treaty says that pensions are taxable in Canada to the extent that they are taxable in US, and that Roths are included, but only to the extent that all contributions are made by US residents. Once a contribution is made by a Cdn resident, it cease to have that protection, and then yearly gains become taxable.
The best that ones in that sorry state can do is beg to defer taxation on the yearly gains until withdrawal. I would have to look at the CFRA procedure to see if that is possible.
Otherwise its pay as you go, just like any unsheltered investment account.
The best that ones in that sorry state can do is beg to defer taxation on the yearly gains until withdrawal. I would have to look at the CFRA procedure to see if that is possible.
Otherwise its pay as you go, just like any unsheltered investment account.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best