Moving Back to Canada from US - TN Visa Holder
Moderator: Mark T Serbinski CA CPA
Nelsona,
I'm in the final stages of the move back and wanted to check something with you. Have been doing some research over the past few hours on taxes.
1. You mentioned that I would be safe under the $100k income limitation for Roth conversions if I file 1040NR and then separately file my Canadian income for the stub period under a T1. Just curious where I could find the document that discusses this. I looked and wasn't able to find it. So to confirm, the US won't care that my global income is higher than $100k if I file a 1040NR and therefore, the Roth conversion will be possible? Because the 1040NR won't even ask me anything about my Canadian income right? Then on my T1, I'll take a credit for taxes paid to the US but still state my total income for the year? (I still need to do some more research on the Canadian side so sorry if this makes no sense).
2. Here's what I understand around the logic for converting to Roth. If I convert to Roth today, I will pay taxes on the balance as if it were ordinary income. I lived in a tax free state, so I'd only be paying about a 23 or 24% tax rate today. Then this money is tax free forever in Canada/US. Alternatively, if I leave it as an IRA, in 35 years when I go to take it out (I am 25 years old), I will pay taxes at Canadian/Ontario rates (around 38%). So it makes sense to convert now and take advantage of the low US tax rate.
My only concern is that as you mentioned, I can only do the conversion if I file form 1040NR (due to income limitations). My return is very simple (no property, dependents, etc) so the only difference appears to be that I wont be able to take the standard deduction of ~$5,400 which is equal to a after tax dollar loss of about $1,200. So it seems to me that this isn't a high price to "pay" to get the lower US tax rate on my IRA balance of about $40,000.
Wondering if you agree with this analysis?
Also, in general, is it better to have a Roth account than a regular IRA (not for tax purposes, but more on the financial planning side). It seems to me like the answer is yes, particularly if you will be pursuing aggressive investment strategies with these Roth dollars. For example, in an extreme case, if you buy options on stocks which then results in large 10x payoffs, your small after tax principal was able to generate high multiples of itself which are never taxed.
Separately, do I need to file a form 1040-C or Form 2063 when leaving the US?
Finally, I didn't see that there was an option to elect resident alien full 1040 treatment if I haven't met the substantial presence test in the US (I left after 180 days but am not yet in Canada - am on holiday). Where can I find info on how to elect this treatment? Only found it for the first year when you move to US not when you leave. Based on IRS Publication 519, the flow chart indicated that I had to file as non resident alien regardless, and I think I saw a confirmation of this later in the section on which forms to file. Anyways, this point won't be relevant if I ultimately go with the 1040NR filing to get the Roth benefit. But just curious (I am sure I am missing something).
Also, you mentioned brokerages that could keep the IRA while I moved to Canada. I called Fidelity (my current service provider) and they said there was no problem leaving it here as an IRA.
Thanks again for all your help. Am almost done!
I'm in the final stages of the move back and wanted to check something with you. Have been doing some research over the past few hours on taxes.
1. You mentioned that I would be safe under the $100k income limitation for Roth conversions if I file 1040NR and then separately file my Canadian income for the stub period under a T1. Just curious where I could find the document that discusses this. I looked and wasn't able to find it. So to confirm, the US won't care that my global income is higher than $100k if I file a 1040NR and therefore, the Roth conversion will be possible? Because the 1040NR won't even ask me anything about my Canadian income right? Then on my T1, I'll take a credit for taxes paid to the US but still state my total income for the year? (I still need to do some more research on the Canadian side so sorry if this makes no sense).
2. Here's what I understand around the logic for converting to Roth. If I convert to Roth today, I will pay taxes on the balance as if it were ordinary income. I lived in a tax free state, so I'd only be paying about a 23 or 24% tax rate today. Then this money is tax free forever in Canada/US. Alternatively, if I leave it as an IRA, in 35 years when I go to take it out (I am 25 years old), I will pay taxes at Canadian/Ontario rates (around 38%). So it makes sense to convert now and take advantage of the low US tax rate.
My only concern is that as you mentioned, I can only do the conversion if I file form 1040NR (due to income limitations). My return is very simple (no property, dependents, etc) so the only difference appears to be that I wont be able to take the standard deduction of ~$5,400 which is equal to a after tax dollar loss of about $1,200. So it seems to me that this isn't a high price to "pay" to get the lower US tax rate on my IRA balance of about $40,000.
Wondering if you agree with this analysis?
Also, in general, is it better to have a Roth account than a regular IRA (not for tax purposes, but more on the financial planning side). It seems to me like the answer is yes, particularly if you will be pursuing aggressive investment strategies with these Roth dollars. For example, in an extreme case, if you buy options on stocks which then results in large 10x payoffs, your small after tax principal was able to generate high multiples of itself which are never taxed.
Separately, do I need to file a form 1040-C or Form 2063 when leaving the US?
Finally, I didn't see that there was an option to elect resident alien full 1040 treatment if I haven't met the substantial presence test in the US (I left after 180 days but am not yet in Canada - am on holiday). Where can I find info on how to elect this treatment? Only found it for the first year when you move to US not when you leave. Based on IRS Publication 519, the flow chart indicated that I had to file as non resident alien regardless, and I think I saw a confirmation of this later in the section on which forms to file. Anyways, this point won't be relevant if I ultimately go with the 1040NR filing to get the Roth benefit. But just curious (I am sure I am missing something).
Also, you mentioned brokerages that could keep the IRA while I moved to Canada. I called Fidelity (my current service provider) and they said there was no problem leaving it here as an IRA.
Thanks again for all your help. Am almost done!
1. This is my understanding. Your modified AGI determined on 1040NR will be the one used to determine if you are eligible for Roth conversion.
Your Cdn return will only have income from after you enter canada, so it is unlikley that you will have any US source income to report, so you won't be taking any credit for US tax. Read the newcomers guide from CTA.
2. You do not have to file sailing permit.
Pub 519 describes year of departure. basically, if you were resident of us the previous year, you are by default resident for the whole year of departure. You can choose, like you are, to cut your year if you establish a tax home elsewhere
Your Cdn return will only have income from after you enter canada, so it is unlikley that you will have any US source income to report, so you won't be taking any credit for US tax. Read the newcomers guide from CTA.
2. You do not have to file sailing permit.
Pub 519 describes year of departure. basically, if you were resident of us the previous year, you are by default resident for the whole year of departure. You can choose, like you are, to cut your year if you establish a tax home elsewhere
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
ROth conversion
Can't believe I waited this long to do the conversion, but here is a question resulting from how long I waited:
I put in the request to convert the SEP-IRA to Roth this evening. I was told that the conversion will take place either on either Tuesday or latest on Wednesday.
I am worried about one thing: I arrive to Canada at 11.30pm on Wednesday night. If the conversion happens on Wednesday during the day and I arrive on Wednesday night, will I be OK with the CRA? I understand that the 1099 form I would get at the end of the year will specify the date the conversion is made. Do I become a resident of Canada in the CRA's eyes on Wednesday (with 30min in Canada!) or on the first full day (Thursday). And if it's on Wednesday, am I OK given that the conversion will have happened before I land? Doubt that 1099 forms have timestamps! I guess at the end of the day I am leaving myself open to interpretation of the rules? If need be, I can delay my flight by a day to be safe.
Sorry if this appears trivial, but I am just worried that I waited too long and am going to have a problem. Either way, lesson learned - everything takes time.
Thank you
I put in the request to convert the SEP-IRA to Roth this evening. I was told that the conversion will take place either on either Tuesday or latest on Wednesday.
I am worried about one thing: I arrive to Canada at 11.30pm on Wednesday night. If the conversion happens on Wednesday during the day and I arrive on Wednesday night, will I be OK with the CRA? I understand that the 1099 form I would get at the end of the year will specify the date the conversion is made. Do I become a resident of Canada in the CRA's eyes on Wednesday (with 30min in Canada!) or on the first full day (Thursday). And if it's on Wednesday, am I OK given that the conversion will have happened before I land? Doubt that 1099 forms have timestamps! I guess at the end of the day I am leaving myself open to interpretation of the rules? If need be, I can delay my flight by a day to be safe.
Sorry if this appears trivial, but I am just worried that I waited too long and am going to have a problem. Either way, lesson learned - everything takes time.
Thank you
Professional preparation
Hi Nelsona,
As tax season approaches, I am looking at options for filing my US and Canadian tax returns. Am considering engaging a professional to help me with this. Are you available to help with this? As you are already well aware of my situation based on our posts over 2009, would you be able to estimate how much this would cost?
Thanks.
As tax season approaches, I am looking at options for filing my US and Canadian tax returns. Am considering engaging a professional to help me with this. Are you available to help with this? As you are already well aware of my situation based on our posts over 2009, would you be able to estimate how much this would cost?
Thanks.