Roth 401k Contribution by Old US Employer as Can. Resident

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

Roth 401k Contribution by Old US Employer as Can. Resident

Post by flyingmonkey »

I just moved back to Canada from the US. Prior to leaving I rolled my employer Roth 401k over into my Roth IRA as soon as the rollover option was made available after termination.

Unfortunately, after I landed in Canada (and hence became a tax resident of Canada) additional contributions showed up in my Roth 401k. These contributions were deducted off my final paycheck which I received BEFORE leaving, but did not show up in my Roth 401k until AFTER leaving.

The question is: What to I do with these funds? Does the fact that the contributions were made after I became a tax resident of Canada mean that they lose their tax free status? Does the fact that they were contributed by my employer from a paycheck dated prior to me being a resident make a difference?

If the money is okay and Canada will let me treat it as tax free, will I have problems rolling it over to my Roth IRA considering I already technically rolled that account over?

Ideally this would have been all done before I left, but moving was a whirlwind and this is one of a couple things which were missed.

Thanks
nelsona
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Joined: Wed Oct 27, 2004 2:33 pm
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Post by nelsona »

You made the contribution while non-resident. The fact that it took a few days to get to your account is not important.

Rollovers never trigger a problem. There is no limit on how many tiomes you may need to rollover funds from one to the other.
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 »

Alright, so those contributions were made as non-resident. I assume it's best then to just withdraw the funds and take the 10% penalty as its only a few hundred bucks.

If I don't withdraw, does the account basically just become a non-registered taxable account?

I also assume it would be a bad idea to roll it over into my Roth IRA, as that could damage my Roth IRAs tax free status?
nelsona
Posts: 18314
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

Please re-read what I wrote, because you seem to have gotten it all wrong.

"You made the contribution while non-resident"
Non-resident means non-resident of Canada. That is all that matters for CRA. You are fine.

"Rollovers never trigger a problem."

How do you interpret this to mean you should not do a rollover from one Roth to another. Those are allowed, anytime, as many as you need.

And just for clarification, if you did make a Roth contribution as a Cdn resident (which you did not), then merely taking out the "offending" contribution would NOT fix the problem. Your Roth would be broken.
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 »

Apologies, I misinterpreted non-resident as non-resident of US.

The following comment was in regards to if the contribution was considered a contribution as a Canadian resident. If that was the case, I would guess that rolling it over to an IRA might spoil the IRA (make it broken as well). I assume this since you are technically adding a Canadian contribution to the Roth IRA through a rollover. Otherwise would this not be a loophole? If my Roth 401k was "broken", could I just roll it over into my Roth IRA and regain the tax-free status?

Since you are saying the contribution is made as non-resident, then I will roll it over into my Roth IRA (Roth to Roth rollover) and everything should be okay. I'll probably call the CRA and ask them just to confirm. I do no want to risk spoiling my entire Roth IRA which would be bad.

Thanks
nelsona
Posts: 18314
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

I would NOT call CRA. They will misinform you. You made the contribution as a non-resident. Period. You aren't including the income from your last pay check for the same reason.

If you did make it as Cdn resident, then there is no maneuver that you can do to make it right.

If you rolled a spoiled roth to another "good" roth, then that one would also be tainted, since it would contain a Cdn contribution.
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 »

Alright, so the remaining thing that confuses is whether I need to do anything special for the Roth 401k or subsequent rollover?

I know that for my Roth IRA that I will file an election with the CRA when I file my 2018 (arrival) return. On that election I will state the balance of the Roth IRA as of the date I arrived in Canada.

If I plan to roll my Roth 401k into my Roth IRA before the end of 2018, do I need to file the election for my Roth 401k as well? And if I do, won't it be a problem as the balance on the day I arrived was 0, since the contributions showed up later?
nelsona
Posts: 18314
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

Yes. You need 1 statement per Roth. A roth401(K) is a separate Roth account.
You can reed the CRA guidance as well as I can. The balance when you arrived is zero in the Roth401(k).
Eventually it will be closed. There is no need to report when it is closed, or when you make a rollover from it to an existing account.

This really isn;t abog deal. If you wish to leave the small sum in the old Roth401(k) until service changes empty it you can.
But, you did not make a Cdn contribution to the account.
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 »

Alright, I appreciate the help and I will follow your advice. Thanks!
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