Best way my retirement funds from the US to Canada?

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pwmartin
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Best way my retirement funds from the US to Canada?

Post by pwmartin » Thu Jul 13, 2017 4:27 pm

I worked in the US for 8 years and then, after moving back home to Canada in 2011, turned in my green card as it became clear we wouldn't be going back.

Now, I'd like to move my retirement funds back to Canada and am wondering the best way and timing to do this. I have some money in my college retirement plan (an RA) and the bulk in a traditional IRA. Wondering how I go about moving this and the tax implications for me on both sides of the border. I gave up my green card the year after I arrived here and did not file US tax returns after that.

I've just started a new university job and have the opportunity to move pension funds from any previous jobs into my the govt. employee pension plan. Should I try to do that with my US funds? Or should I move them into an RRSP?

I'd appreciate any advice you can give me.

Thanks,

Paul

nelsona
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Post by nelsona » Thu Jul 13, 2017 5:00 pm

There is a complex method of collapsing the IRA and then funding an RRSP that has been described here.

Things to know is that the even is fully taxable in US and Canada, so you need to come up with the withheld tax and penalty from other funds to make up the full amount of the transfer, and you need to have at least the equivalent amount of other income to be able to get full credit for the US tax and penalty you will pay.

What amount are we talking about and how old are you?

You could just leave it in the US until you retire.
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nelsona
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Post by nelsona » Thu Jul 13, 2017 5:07 pm

I give you a quick summary, based on $100K pension. I'm leaving all the amounts in USD.

You collapse the pension, and have 15-30% plus 10% penalty withheld. So you have, say $75K left.

You put the $75K into an RRSP, plus the $25K from other sources. This is considered a transfer by CRA because it was foreign pension.

At tax time you file a 1040NR for $100K and figure the US tax and penalty.

In Canada, you report the $100K as income, but get a deduction for the $100K you put in.

You then get to take credit for the US tax -- against your other income (this is not intuitive, since it seems you got a deduction for the US income, so you shouldn't be allowed to get a credit, but CRA has definitely said they will accept it).

So, you need to have enough other income to report to cover the tax and paenaly that you can claim. A good rule of thumb is that your other income (Cdn salary, investment income, etc) should be about equal to your pension amount.

CRA requires that this be a collapse of the IRA, not just a year-by-year withdrawal. I have heard people do it in 2 chunks, but no more.
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pwmartin
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Post by pwmartin » Thu Jul 13, 2017 5:08 pm

Hi,

Good questions! Should have included that information. I'm 49 and it's about 65K in the Traditional IRA and 20K in the RA.

Was just thinking it would be simpler to move the $ into all one place. I have a ton of unused RRSP contribution room, as I've never contributed in Canada. Have been working on contract for my first 6 years back in Canada and haven't been able to contribute to RRSPs.

I paid about 30k in income tax last year. As of July 1, I'll be able to have pension contributions deducted from my check, so it might be a bit less this year.

One of the other reasons I'm thinking about trying to bring back my $ to Canada is that I may be forced to pull a bit of money out of there if my personal situation changes in the next year. Want to have that as a last-resort contingency just in case.

Paul

nelsona
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Post by nelsona » Thu Jul 13, 2017 5:24 pm

Just realize that to make this work, you need to come up with the cash for the portion that is withheld when you close the IRA.

And it is not dependent on you having RRSP contribution room. It is considered a transfer. It doesn't touch your contribution room.

The Retirement account with the college is a separate issue. You might not have access to those funds until you retire, and may not be eligible for this scheme.

But if you can transfer them to the IRA, I don't see a problem. It the becomes a bigger transfer, so (a) you need to come up with more cash, and you need a bigger income to absorb the tax.

But from the numbers you quote it seems doable.
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pwmartin
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Post by pwmartin » Thu Jul 13, 2017 7:51 pm

Thanks for your help with this.

So, if I were able to find the cash in the short term that would equal the witholding and penalty for collapsing that IRA (I'm assuming I'd have to make sure to do that before 12/31/2017) would I ultimately break even come tax time?

Paul

nelsona
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Post by nelsona » Thu Jul 13, 2017 9:44 pm

Yes, if all of the US tax works out to be credited.

I would work on the pension first, getting that to the IRA. Then see if you think you have time to get this done this year.

I *think* you still get the first 60 days of next year to complete the transfer, but you would need to double check this. before 12/31 would be safest.
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andrewcliff
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Re: Best way my retirement funds from the US to Canada?

Post by andrewcliff » Wed Mar 06, 2019 4:45 am

Thank you Nelsona for answers, they helped me a lot.

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