My mother is a 74 yr old dual citizen moving back to Canada. She holds an investment account, a traditional IRA and a Roth IRA. From what I can read in the tax treaty and the new protocol the required minimum withdrawals from the traditional IRA would be included in taxable income in both countries, whereas Roth distribution would not be in either. And from the Newcomers guide to Canada, she would not be taxed on RMD received prior to becoming Cdn resident. Is that correct? Meaning that she should take her RMD from the traditional IRA before moving, to avoid Cdn tax thereon.
Also wrt roll-over conversion from traditional IRA to Roth, such conversions are included in income for US tax purposes, would they also be included in income for Cdn tax? (I believe they are) If yes, would this only apply to conversion made after becoming Cdn resident, thus making it a good idea to convert before moving? Or worse does conversion from traditional to Roth after becoming a Cdn resident disqualify the Roth from being considered a pension per the new protocol, making it imperative to convert before moving? Finally IRS Pub 590 states that such conversions can be deferred from income for 2010 and included in 2011 and 2012. If the conversion is done before moving, but included in US income in 2011/12 will it also then be included in Cdn income in 2011/12?
There are many valuable posts on this website, so I apologize if my questions have been asked before. If so please send me a link.
Thanks.
Dual Citizen returning to Canada after 35+ years: IRA taxati
Moderator: Mark T Serbinski CA CPA
Your analysis on the treatment of IRA income and Roth income is correct.
I have been advising all who are planning to move to canada and are considering to rollover IRA etc to Roth, do decide whether to do this BEFORE moving, as this preserves the Roth.
Canada will probably not recognize the 'spreading out' of such Rollover and declre the income as 2010, which would mean she should too.
i'm of the opinion that such a rollover made after the move to canada WOULD break the Roth shelter, since the language in the treaty specifically adresses funding the Roth only from other Roth accounts.
In her siutation, I would be taking my RMD and making any Roth rollovers before moving.
I have been advising all who are planning to move to canada and are considering to rollover IRA etc to Roth, do decide whether to do this BEFORE moving, as this preserves the Roth.
Canada will probably not recognize the 'spreading out' of such Rollover and declre the income as 2010, which would mean she should too.
i'm of the opinion that such a rollover made after the move to canada WOULD break the Roth shelter, since the language in the treaty specifically adresses funding the Roth only from other Roth accounts.
In her siutation, I would be taking my RMD and making any Roth rollovers before moving.
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
Thanks.
I was thinking that if the conversion was made before moving, then CRA would not see it as income in 2010. Then if she carried forward for US tax purposes to 2011/12, what would CRA see, since there would be no conversion in 2011/12. In fact there could be no traditional IRA left if it was all converted to Roth beofre leaving.
I was thinking that if the conversion was made before moving, then CRA would not see it as income in 2010. Then if she carried forward for US tax purposes to 2011/12, what would CRA see, since there would be no conversion in 2011/12. In fact there could be no traditional IRA left if it was all converted to Roth beofre leaving.
Can anyone clarify for me if the conversion from traditional to Roth before moving triggers a new 5 year wait period for the Roth? Again IRS publication 590 states that each conversion starts its own 5 year period, but the Ordering Rules apply only to distributions that are not qualified distributions, and from what I can read any distribution she would receive would be a qualified distribution as the Roth was started more than 5 years ago and she is >591/2 years old.
The conversion does indeed trigger a 5-year period, but only for those funds. However, the 59.5 age overrides all of these. Remember, the 10% penalty would be the way to prevent one from taking an IRA, converting it without penalty, and then taking it out of your Roth.
If she had left the IRA alone until 59.5, she would not havebeen subject to the 10%, so won't be if she takes it out of her Roth.
If she had left the IRA alone until 59.5, she would not havebeen subject to the 10%, so won't be if she takes it out of her Roth.
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
No, I'm quite sure that the income spread to the future years on her US return would NOT be considered income on her Cdn return.
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
Thanks Nelsona. OK, so from this last post I understand she could convert from traditional to Roth before leaving, which would not be reported as income in 2010 Cdn tax, and by electing to spread the income into 2011/12 for US taxes, it would also not be reported as Cdn income in 2011/12. Is that right? If yes, then this would seem to be the right approach, assuming the 2011/12 US taxes payable are manageable.
I'd like to follow along and ask about inheritance issues. If a Roth IRA is inherited it seems as though the heir can take the Roth funds out anytime within 5 years of the year following the death, and that the heir would have no taxes to pay, assuming any roll over amounts have been in the Roth for 5 years.
Does this change, i.e., whether the heir has any tax to pay, if the heir is not a US citizen & US resident. What if the heir is a Canadian citizen Canadian resident, or US citizen Canadian resident?
And would the situation be different if it is a traditional IRA that is inherited? US citizen US resident can take the traditional IRA either over 5 years or over their life expactancy from Table 1 of pub. 590, and would pay any taxes due at the time taken (I think). But what about a Canadian citizen Canadian resident or US citizen Canadian resident?
Does this change, i.e., whether the heir has any tax to pay, if the heir is not a US citizen & US resident. What if the heir is a Canadian citizen Canadian resident, or US citizen Canadian resident?
And would the situation be different if it is a traditional IRA that is inherited? US citizen US resident can take the traditional IRA either over 5 years or over their life expactancy from Table 1 of pub. 590, and would pay any taxes due at the time taken (I think). But what about a Canadian citizen Canadian resident or US citizen Canadian resident?
If the roth or IRA would be taxable to a US citizen, it would be taxable to the non-us citizen/resident.
It is still US-sourced income subject to US tax rules.
It is still US-sourced income subject to US tax rules.
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