Closing/Withdrawing Traditional IRA in Canada

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
flyingmonkey
Posts: 28
Joined: Tue Mar 07, 2017 11:51 am

Closing/Withdrawing Traditional IRA in Canada

Post by flyingmonkey »

I just recently moved back to Canada after living/working in US. I followed all the advice I could including moving all funds to a Roth IRA with Fidelity before leaving (Fidelity told me I can buy/sell/trade with my Roth IRA as a Canadian resident no problem).

In the rush and business of moving, I forgot to close out my Traditional IRA. I have already moved and it is sitting there with 14 cents in it. It was only ever used for Backdoor Roth's, so I assume the 14 cents are gains made during the time my backdoor Roth money sat in the Traditional IRA.

How should I close this account, while in Canada, to minimize the reporting burden? It's 14 cents, I don't care if I get charged 100% withholding tax, I just want to minimize the reporting burden and keep things as simple as possible. Thanks!
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

Close it and include 14 cents on your Cdn return
Not sure what you were worried about
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
flyingmonkey
Posts: 28
Joined: Tue Mar 07, 2017 11:51 am

Post by flyingmonkey »

Okay, I will close the account. It is my understanding that the following will then happen:

Institution holding the account will charge me a 30% or 15% withholding tax. If they charge a 15% withholding tax, I need to file form W-8BEN to them.

When I file my 2018 US taxes, I pay a 10% penalty on the withdrawal. Do I also get charged regular income tax on it as well? Is this all done on the 1040 or 1040NR? (I haven't decided whether I will file full year or as dual status).

When I file 2018 Canadian taxes, I treat the withdrawal as income. I can claim a foreign tax credit, but for 14 cents it's not worth the effort.
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

Just close the account, even if you pay 14 cents tax. It won't matter. Don't bother with W-8 or foreign tax credit.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
flyingmonkey
Posts: 28
Joined: Tue Mar 07, 2017 11:51 am

Post by flyingmonkey »

Makes sense to not bother with W-8 or foreign credit.

I know I have to include this withdrawal as income on my Canadian 2018 return. Do I need to include it on my US 2018 return? My understanding is that if I file a full-year 1040 I would include the 0.14 cents as taxable distributions and then also include the withdrawal penalty. Is there anything different if I instead choose to file as dual status and use a 1040NR?
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

It is US sourced income, it must be reported, unless their is tax withheld and yo uare a non-ressint, and don't want a refund.

C'mon, I think you can figure this out.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
flyingmonkey
Posts: 28
Joined: Tue Mar 07, 2017 11:51 am

Re: Closing/Withdrawing Traditional IRA in Canada

Post by flyingmonkey »

Digging this post back up since I am currently filing...

I closed the account and received the 0.14 cent distribution. The thing that confuses me is that no tax was withheld. I don't think it really matters, but shouldn't tax have been withheld? As I understand the default is 10% and I had not elected anything else otherwise. Additionally, I had thought as a foreign person there would be mandatory withholding.
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Closing/Withdrawing Traditional IRA in Canada

Post by nelsona »

there would be no withholding on such a small amount. Report the income in Canada
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
Post Reply