Moved back to Canada; can I convert traditional IRA to Roth?

markitzero · Post by **markitzero** » Sat Dec 22, 2012 11:20 pm

I searched the internet for hours looking for the answer to this question...I couldn't even find anything close to it.

I'm a Canadian citizen, but I used to live/work in the US, during which time I contributed to a tax-deductible IRA (which is now worth around $35,000).

I'm now back in Canada and had a low income in 2012...if I were a regular American this would have been an ideal year for converting that IRA to a Roth, since I'm in as low a tax bracket as I likely ever will be. [b]But it's not at all clear to me what the implications of a Roth conversion would even be.[/b] I don't file a U.S. tax return anymore since I'm back in Canada. An American citizen/resident would have to pay tax on the $35,000 he converts (which makes sense, since it consists of PRE-tax dollars + earnings thereupon.)

[b]But WHICH COUNTRY do I pay taxes to?[/b] I'd imagine the IRS would want me to pay THEM, since the tax hit I avoided contributing to the IRA was money that otherwise would have gone to them, right? But...I no longer even file a U.S. return!?

I really did search far and wide online, and as best I could tell this question has not really been addressed at all.

rsargant · Post by **rsargant** » Sun Dec 23, 2012 9:52 am

I think the conversion has be done before taking up residency in Canada or the Roth IRA will be taxable in Canada making the conversion pretty pointless.

If you leave as is, you will owe 15% N.R (non resident) tax drawing it down. You will report that income to Canada who will tax it as regular income . You can claim a foreign tax credit to Canada for the 15% U.S tax paid.

eortlund · Post by **eortlund** » Sun Dec 23, 2012 4:07 pm

A couple years ago, the CRA required us to report our Roths to them, and agree that if we made a contribution to them while in Canada, they would immediately become taxable. I assume a conversion would be treated the same.

markitzero · Post by **markitzero** » Sun Dec 23, 2012 11:42 pm

[quote="eortlund"]A couple years ago, the CRA required us to report our Roths to them, and agree that if we made a contribution to them while in Canada, they would immediately become taxable. I assume a conversion would be treated the same.[/quote]

Hm, I don't really see why it would be. Contributions and conversions are entirely different entities.

eortlund · Post by **eortlund** » Mon Dec 24, 2012 1:01 am

This is the CRA publication pertaining to this, http://www.cra-arc.gc.ca/E/pub/tp/itnew ... s-43-e.pdf

"A Canadian Contribution does not include rollover
contributions from another Roth IRA or a Roth 401(k)
arrangement that qualifies as a â€œpensionâ€ under
Article XVIII. However, a conversion or rollover from
qualified employer sponsored retirement plan accounts
(such as traditional 401(k)s and profit sharing plans) or
traditional IRAs to a Roth IRA after December 31, 2008
will be considered a Canadian Contribution."

nelsona · Post by **nelsona** » Mon Dec 24, 2012 10:20 am

A conversion while in canad is a double whaammy. First, the conversion is taxable income, and also, future Roth income is unshelytered.

DO NOT convert a non-Roth into a Roth while living in Canada. Period. Take the mobney if you have to, and put it in a TFSA or RRSP, or into your home.