Transferring Roth IRA & 401-K to Montreal, QC

harjindermall · Post by **harjindermall** » Wed Nov 17, 2010 1:35 pm

Hello,

I'm currently living in Chicago on a H-4 visa. I have a Roth IRA with Fidelity Investments and a 401-K with my previous employer. I'm now moving back to Canada and was wondering what were my options about transferring my Roth IRA & 401-K to Canada. I was thinking of opening a TFSA with RBC if transferring is an option.

Thanks in advance for your help!

nelsona · Post by **nelsona** » Wed Nov 17, 2010 1:56 pm

There is no method of transferring a Roth. In fasct you should leave it alone in US so it remains tax-free. Build up your TFSA on its own.

Your 401(K) should aslo be left in US, probably in an IRA. It would have been wise for you to transfer your 401(k) to a roth before leaving US, but it is too late for that.

There is a complex way to close an IRA, pay the US tax and penalty, and then fund an RRSP wit hthe equivalent amount, and get credit in Canada for the tax, but you will still be out the 10% penalty, so I see no point in doing this before retirement age.

harjindermall · Post by **harjindermall** » Wed Nov 17, 2010 2:05 pm

Thank you for clarifying that Nelsona! I really appreciate it!

I was under the impression that we could not transfer a 401-K directly to a Roth IRA because of tax purposes. It has to be transferred to an IRA and then do a Roth conversion. Is that right?

nelsona · Post by **nelsona** » Wed Nov 17, 2010 2:15 pm

There may be the requiremnt of the additional step that you mentioned, not for tax reasons, but simply because taht is how the IRS wishes it. You can look that up for your own edification.

HOWEVER, my point is that now that you are in Canada, you should NEVER put any new money into a Roth, nor transfer from 401(k)/IRA into a Roth. this causes immediate taxation of Roth by CRA.

nelsona · Post by **nelsona** » Wed Nov 17, 2010 2:18 pm

In fact, since 2007, it is permiitred to convert 401(k) funds directly to a Roth, without intermediate step.

Agian, this should ONLY be done by US RESIDENTS.

harjindermall · Post by **harjindermall** » Wed Nov 17, 2010 2:33 pm

I'm still living in the USA at the moment. I'm moving back in December 2010. I will make sure the rollover happens before I move back.

In addition, I have not worked since October 2009 since I transferred from TN to H-4 visa. Will this affect my income taxes at all when I rollover the 401-K to the Roth IRA?

nelsona · Post by **nelsona** » Wed Nov 17, 2010 2:57 pm

Ah, sorry for missing that tiny detail.

Yes, with the rules in place for 2010, you can defer taxation to next 2 years, which is perfect since you are leaving. THIS IS PERFECT FOR YOU. GET GOING!!!

The fact that you weren't working this year doesn't really matter, since you file jointly.

Just be sure you find a firm that let's you have a Roth account while non-resident. BE VERY EXPLICIT WHEN ASKING ABOUT THIS AND GET IT IN WRITING.

many cdns find that six months after they leave they gety a letter from thier IRA firm saying they MUST close the account.

harjindermall · Post by **harjindermall** » Wed Nov 17, 2010 3:05 pm

Do you any particular firms that would allow me to keep it open?

harjindermall · Post by **harjindermall** » Wed Nov 17, 2010 3:42 pm

I just verified with Fidelity Investments and they confirmed that I can keep the account open but I will have limited access to the account.

Per Fidelity Investments:

However, we are limited in the assistance we can give you. For example, we can't tell you how to use Fidelity.com. And we can't give guidance on your account. By guidance I mean helping you choose investments, advising you what changes to make to your investments, and so forth.

You will receive statements by mail (you can not receive them by email) and you can manage your own investments. You can also call us for assistance in making trades, withdrawing money, etc. There is a toll free number from Canada.

It turns out if you were living in Canada, and tried to open a brand new account, we can not do that anymore. But since your account was opened while living in the US, there is no problem. Just that our services are a bit more limited.

nelsona · Post by **nelsona** » Wed Nov 17, 2010 4:44 pm

Thanks for the info. Yes it is very important to establish the account (and verify Cdn access) BEFORE leaving US.

ExpatAmerican · Post by **ExpatAmerican** » Thu Nov 18, 2010 3:35 pm

Hello. Yes, US securities law does allow a conditional exemption from registration for qualifying US broker-dealers, and Fidelity does qualify. But there are some other reasons why you might consider moving your accounts to a broker that can 1.) offer you more than just order taking, and 2.) offer you a much wider range of investment alternatives than what they would receive at Fidelity. Some investors would like more assistance with their investment planning than just unsolicited order taking. Secondly, if you are planning to retire in Canada, and most of your Fidelity IRA assets are (most likely) in US dollar investments, then this would be incongruous with a basic precept of retirement planning in that most of your retirement assets should be denominated in the currency of your "retirement residency." Darrell Thompson at Macquarie Private Wealth Corp. in Toronto, Canada is licensed in 3 provinces and 28 states and specializes in managing such "orphaned" investment accounts. He can be emailed at darrell.thompson@macquarie.com

nelsona · Post by **nelsona** » Thu Nov 18, 2010 5:38 pm

Indeed. Blackmont, pacifica and a couple of other firms would offer better "integrated" cross-border retirement planning advice -- for sometimes steep price, but which may be worth it.

harjindermall · Post by **harjindermall** » Thu Nov 18, 2010 6:45 pm

I just got in contact with Macquarie Capital Advisors in Montreal and they advised me that the best solution would be to keep the funds at Fidelity in the Roth IRA.

Actually, I was wondering about something else. I have a house in the US. My wife will stay in the US until we are ready to sell the house and then she will join me back in Canada. How will that affect taxes as we will be using that money to buy a house in Montreal.

nelsona · Post by **nelsona** » Thu Nov 18, 2010 9:20 pm

Not much. You will become resident when you move back, she will when she does.
You will still file 1040 and pay tax only on US incoem after credits.

harjindermall · Post by **harjindermall** » Thu Nov 18, 2010 10:07 pm

I read somewhere that you can exclude profits up to $250,000 (if unmarried) or up to $500,000 (if married) on the sale of your main house. You need to have owned and lived in the house for at least two years.

If youâ€™ve owned the home less than one year, any gain over the excludable amount will be taxed at a rate that will be the same as your ordinary income tax rate.

If youâ€™ve owned the home longer than one year, the capital gains tax rate will apply, which will likely be lower than your ordinary income tax rate.

We bought our house in July 2010 and intend on selling it next year as it will one year we will own it. I know the best option would be for my wife to stay here for 2 years and then come back but we cannot go that route. Is there any option to minimize taxes?