401k owner heading back to Canada

rsargant · Post by **rsargant** » Tue Dec 27, 2011 3:54 pm

I am just guessing but I have heard about the concept of tax diversification where one intentionally funds both traditional 401k/Ira and Roth 401k/Ira simply because nobody knows if the rules might change to make one treatment better then another sometime in the future. That might be why they suggested a split though I wonder how the cross border issues factor into the thinking?

Seems to me that the chance to escape canadian taxation of retirement income makes it a no brainer if you can afford the conversion before leaving!

nelsona · Post by **nelsona** » Tue Dec 27, 2011 4:02 pm

Yup.

There is an argument for splitting, just like it makes a lot of sense when funding one's 401(k) or Roth401(K) to find the tipping point between tax-brackets below which 401(k) no longer makes sense (I use this).

But I agree with you that given that we now know how CRA will treat Roths, 401(k) is a liability I would not want to intentionally hold o to if returning to canada.

rsargant · Post by **rsargant** » Wed Dec 28, 2011 10:04 am

One question i still have about this is When you are withdraw from the Roth in retirement while resident in Canada, would there be any IRS withholding/filing requirements as a NR?

You do not owe u.s tax on the roth withdrawal but i am wondering what the mechanics would be.

nelsona · Post by **nelsona** » Wed Dec 28, 2011 10:26 am

There would be no tax nor withholding if done after the 5-year waiting period.

moi · Post by **moi** » Wed Dec 28, 2011 4:17 pm

OK, I called revenue canada, think, I ended up in China oh well...what the fellow told me was to carefully read itnews-43.
Which is giving me more questions. I think, it is saying I will have to pay taxes in Canada on the money made within the roth, that it is not under any treaty...I'm sure you've read this, what do you think?
And thanks again, I am waiting until 2012 before I make the rollover.
BTY, in my search for someone to who can guide me in my decisions, I have realized I have learned more here than the cpa's and investors I talked to! Whoo hoo.

nelsona · Post by **nelsona** » Wed Dec 28, 2011 5:05 pm

The IT is very familiar and it does mean that your Roth is protected for Canadian taxation as long as you do not make any contributions to it while resident of canada.

I wouldn't bother phoning CRA telephlunkies...

moi · Post by **moi** » Sat Jan 07, 2012 4:25 pm

My income for this year will be 15,000.00, and I file HOH. I am going to need to make a withdrawal on my Roth before I leave, I would like to end up with about 30,000.00. If I take 50,000.00 out, I pay 30% to the irs, am I still in a low enough income bracket in the USA to do this? I am asking because I am not real confident with figuring out their tax table system here. Or, can I take more before I am bumped into another income bracket?

nelsona · Post by **nelsona** » Sat Jan 07, 2012 11:13 pm

The withholding on your Roth before you leave is not your final tax.

I'm not remembering all the details of your ca, but if you were going to take money out of your pension, why did you not just take it from your 401(k) i nthe first place, rather than doing a transfer to r Roth.
The rollover to the roth was alll taxable, so the withdrawal will only be subject to 10% penalty.

Its the other tax you need to worry about.

moi · Post by **moi** » Mon Jan 09, 2012 12:43 pm

Sorry, I am making this very confusing I know.
I actually have just had it moved from the 401k and it is sitting in an account waiting to be dealt with, this week now that the holidays are over.
Would how I am taxed be different if I remove some now, before I roll over the rest?

nelsona · Post by **nelsona** » Mon Jan 09, 2012 1:07 pm

"and it is sitting in an account"

What kind of account? an IRA?

moi · Post by **moi** » Mon Jan 09, 2012 6:22 pm

Yes, an ira account.

nelsona · Post by **nelsona** » Mon Jan 09, 2012 9:45 pm

Ok.

Whatever you take out of the ira account will be taxed and penalized.

Whatever you convert into a Roth (before going to Canad) will be taxed, but not penalized.

Whatever you then take out or Roth (whether before or after going back to canad) will be penalized by IRS but not taxed by either country.

moi · Post by **moi** » Fri Jan 13, 2012 1:23 pm

OK, took awhile, but you had asked why they wanted me to keep the IRA, I finally got my answer. Because, if nothing changes, I will have a low income, and they said with paying the 15% to the US, and claiming the foreign tax credit it would be better than having rolled it into a Roth.
Assuming I pay 15% Federal, 5% ON, and the 15% US tax, I"m not sure how the credit works out, would it be better in my case?

nelsona · Post by **nelsona** » Sun Jan 22, 2012 1:25 am

Obviously they know nothing of Cdn taxation. You will pay 15% in US, yes, but you will also pay another 15% in canada (fed/prov). The foreign tax credit is good, but will nowhere near cover the tax you will owe in Canada.