inherited ROTH IRA: USC and resident of QC

cat · Post by **cat** » Thu Mar 23, 2017 8:08 pm

I am a USC and resident of QC. In 2016 my brother passed away in the US and I was a beneficiary of an inherited ROTH IRA with a value of 7K. I took the total distribution and received a 1099R that listed the gross distribution, the federal withholdings, and the taxable amount was left blank and the taxable amount checked off not determined.

I have read that taking the lump sum is not subject to tax to a US resident. My tax man here in Canada listed the gross amount as additional income on my Canadian returns. I have read that traditional IRAs are taxable as income but are ROTH IRAs treated the same by the CRA?

nelsona · Post by **nelsona** » Thu Mar 23, 2017 9:20 pm

Yes, since it was a roth, and IF was not taxable to your brother, it should not be taxable to you, in either US or Canada. It would only be taxable (the gains) if the roth plan was less than 5 years old, in both US and Canada.

You mentioned federal withholding. How much was withheld? You should be able to file a 1040NR.

If the Roth was less than 5 years old, the correct plan for you to do would have been to leave it until it was 5 years old, and all the funds in the roth would be tax-free in both countries.

cat · Post by **cat** » Thu Mar 23, 2017 9:44 pm

Thank you for your quick reply.
I do not know if it was less than 5 years but think he had it longer, I can find out from the Credit Union that issued it.
10% was withheld
Distribution code: Qualified distribution from Roth IRA
He was 3 days shy of 59 when he passed.

nelsona · Post by **nelsona** » Fri Mar 24, 2017 12:29 am

Nothing should have been withheld, so simply file a 1040NR reporting zero income and the 10% withheld. Inherited Roths are not subject to early withdrawal penalty, and especially not on the whole amount. They said none of it was taxable, so there should not have been any withholding.

cat · Post by **cat** » Fri Mar 24, 2017 12:30 pm

The reason 10% was withheld was because of this statement on the original application to receive the distribution from the financial investment firm: there is a minimum withholding rate when a payment is mailed to a U.S. citizen at an address outside of the U.S. I called to ask why and they said it is a standard IRS policy.

I called the CRA's international tax line and they recognize the qualified Inherited Roth IRA as tax free so I will need to amend CDN my return.

Thank you

nelsona · Post by **nelsona** » Fri Mar 24, 2017 1:46 pm

Right. So just file a 1040NR and get the 10% back. The problem is that now you will likely have to get an ITIN, which may take some time.

What ID number did they use to issue you the 1099R?

cat · Post by **cat** » Fri Mar 24, 2017 1:50 pm

I've got my SS#, (top of thread- I am a USC and resident of QC) I am a dual citizen - I've been doing my US returns forever - not an easy task these days for an average gal like me :)

nelsona · Post by **nelsona** » Fri Mar 24, 2017 2:00 pm

Ah, sorry I missed that little point about USC. . Fill in the 1099R in your software, and just make sure that it doesn't add any income, but credits you with the tax that was withheld.

cat · Post by **cat** » Fri Mar 24, 2017 2:02 pm

Thanls again Nelsona - your the bomb! :)