RPP rollover to Roth IRA

This is our main tax information forum which deals with topics concerning Canadians living and working in the U.S., U.S. citizens contemplating working in Canada, and all aspects of Canadian and U.S. income tax and related adminstrative issues.

Moderator: Mark T Serbinski CA CPA

Post Reply
Bubba Gums
Posts: 54
Joined: Tue Jul 15, 2014 7:20 am

RPP rollover to Roth IRA

Post by Bubba Gums »

I am considering withdrawing my RPP. I would transfer the distribution tax-deferred into my RRSP subject to the limits.

I would like to take the remainder and transfer it to a Roth IRA. I understand I will have 25% of the cash portion withheld as Canadian tax due. I understand I would report the cash portion on my US income tax return. I would offset the US tax liability with a foreign tax credit on the lump sum. I would rollover the full amount distributed (I would add back in the 25% with held portion from other funds). Is the RPP considered a qualified plan?

I would welcome any opinions or comments on this approach.
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: RPP rollover to Roth IRA

Post by nelsona »

First, you may be able to rollover your RPP to an RRSP without limits, and without taxation. Check with your plan administrator.

Second, you cannot put more in your Roth IRA than your yearly limit, our Cdn RPP i(a) not considered qualified, (b) even if it were only after-tax contributions made to it could be moved over.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
Bubba Gums
Posts: 54
Joined: Tue Jul 15, 2014 7:20 am

Re: RPP rollover to Roth IRA

Post by Bubba Gums »

I am subject to the Maximum transfer value limits. https://milliondollarjourney.com/how-to ... ue-mtv.htm

a) One may exceed the annual contribution limits to a Roth IRA by roll over. A roll over from a US pension (a qualified plan) to a Roth IRA is allowed if the amount is included in income. https://www.irs.gov/pub/irs-tege/rollover_chart.pdf

I understand that no foreign plan is a "qualified plan" under the IRS code. Notwithstanding, the treaty XVIII sub 12 states that "For the purposes of determining an individual's eligibility to participate in and receive tax benefits [i.e. a roll over contribution] with respect to a pension or retirement plan or other retirement arrangement established in and recognized for tax purposes by the United States [i.e. A Roth IRA], contributions made to or benefits accrued under, a qualifying retirement plan in Canada [a RPP] by or on behalf of the individual shall be treated as contributions or benefits under a generally corresponding pension or retirement plan established in and recognized for tax purposes by the United States." My insertions in brackets.

Does not the second part of the sentence suggest an equivalence between the treatment of a RPP and a US defined benefit pension?

b) The amount moved to the Roth would be after tax. I would include it in my income in the year it was received to match the timing for the Canadian tax paid (the 25% withholding). There is no avoiding the tax.
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: RPP rollover to Roth IRA

Post by nelsona »

No.
Even if it was a qualified plan (the treaty does NOT make plans qualified for this purpose), otherwise we would all have transferred RRSPs to IRAs and vice-versa. It simply isn't the case.

After-tax in this sense means after-tax CONTRIBUTION to your CDn plan, which this was not. Many qualified US pension allow participants to put after-tax money in their pensions. These could be rolled over.

Cdn RULES (not treaty) make foreign pensions (any foreign pensions, not just treaty countries) eligible for "transfer" into an RRSP without affecting contribution limits. US rules do not do the same.


Btw, as shown in the technical explanation of the treaty, the purpose of paragraph twelve is to determine eligibility to participate in a US plan, but at a reduced amount, if one is already Contributing to a CDn plan (cross-border commuters). It is not intended to equivalence all retirement plans.

You could request a PLR for your particular situation.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
Phil Hogan, CA
Posts: 30
Joined: Fri Jan 08, 2010 12:11 pm
Location: Victoria BC
Contact:

Re: RPP rollover to Roth IRA

Post by Phil Hogan, CA »

We're seeing lots of clients move back to Canada. Many had plans originally and now are finally making the move.

This resource may help:

https://philhogan.com/ira-401k-and-us-i ... dians-faq/
Phil Hogan, CA, CPA (Colorado)
Cross-border investment advisor
http://philhogan.com
250-661-9417
Victoria BC
Post Reply