Hello,
Dual citizen resident in Canada has inherited IRA. 1099 shows total amount is taxable in US. In Canada individuals are not taxed on inherited funds if my understanding is correct.
Is this IRA threfore not taxable in Canada even though it is reported on from 1099 as taxable in the US?
Thank you for your comments. :D
Inherited IRA taxation CDN & US?
Moderator: Mark T Serbinski CA CPA
Be careful.
The reason that you are being taxed in US is because you chose to take the money, thus it was not the inheritance that was taxed, but the distribution.
Thus, in canada, the distribution is included in income as well.
To avoid US taxation (and Cdn) you should have transfered it to another IRA in the the deceased name with you as beneficiary (assuming this was not how it was already set up). Then you would pay tax in both US and Canada when you took distributions (like you will do now).
Moral of the story is that bequething IRA to a non-spouse is not that great a deal.
The reason that you are being taxed in US is because you chose to take the money, thus it was not the inheritance that was taxed, but the distribution.
Thus, in canada, the distribution is included in income as well.
To avoid US taxation (and Cdn) you should have transfered it to another IRA in the the deceased name with you as beneficiary (assuming this was not how it was already set up). Then you would pay tax in both US and Canada when you took distributions (like you will do now).
Moral of the story is that bequething IRA to a non-spouse is not that great a deal.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
... and it is not quite true that inheritors don't pay tax on inheritance. they do if, like in this instance, tax was deffered on a qualified transfer.
This happens in canada all the time when deceased property is transferred to spouse or kids: the tax is deferred until the beneficiary disposes of the asset.
This is exactly your situation.
This happens in canada all the time when deceased property is transferred to spouse or kids: the tax is deferred until the beneficiary disposes of the asset.
This is exactly your situation.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Nelson is spot on on the IRA; I looked this very thing up for a client a few days ago.
On the Canadian tax deferral issue, Nelson, this applies to spousal rollovers, but [u]very rarely[/u] to anything left to others, i.e. kids. In fact, I can off hand only think of leaving an RRSP to a dependent minor. This can be taken into income over the remaining years to age 18 for the child.
Oh, also family farm and fishing properties.
On the Canadian tax deferral issue, Nelson, this applies to spousal rollovers, but [u]very rarely[/u] to anything left to others, i.e. kids. In fact, I can off hand only think of leaving an RRSP to a dependent minor. This can be taken into income over the remaining years to age 18 for the child.
Oh, also family farm and fishing properties.