5 Options for Canadians with US IRAs- Expat Tax Podcast

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Each year I help over 500 clients file their Canadian and US tax returns as well as plan for both their Canadian and US investment accounts. I also regularly help new US clients plan for their move to Canada.

Feel free to reach out via email at phil@philhogan.com or by phone or text here 250-661-9417.




On episode #5 of the Expat Tax and Financial Planning Podcast we discuss some options for Canadians holding US IRA accounts.

Whether you moved up to Canada with a pre-existing IRA or have inherited an IRA from a relative living in the US the following discussion should help you make a decision on what to do with your US IRA accounts.

Collapse the IRA and bring the money to Canada

  • A good option for small accounts
  • May work if your income is already low
  • Keeps things simple
  • 15% minimum tax for non-US citizens

Roll the IRA into a ROTH IRA

  • An option for Americans moving to Canada only
  • Works if your current tax rate is less than your future tax rate
  • Need Canadian ROTH election

Leave the IRA in the US

  • Simple option
  • Some US brokers can’t manage US IRAs for Canadians
  • Likely the US broker will not be able to take direction from Canadian clients
  • Foreign currency risk not properly managed
  • Most US brokers simply do not understand Canadian tax and financial planning

Transfer the IRA to an RRSP

  • Can help consolidate accounts
  • Works well for smaller accounts
  • Often suggested by Canadian investment advisors that cannot manage IRA accounts
  • Can only transfer approximately the amount of your Canadian source income for the year
  • May be able to eventually split RRIF payments
  • You’ll lose the ability to transfer IRA to beneficiaries tax-free

Transfer the IRA to a Canadian border with both a US and Canadian securities license.

  • Likely the best option for large accounts
  • Consolidate your investments in Canada for those moving to Canada permanently
  • Foreign currency risk can be managed
  • Co-ordinate planning with Canadian retirement accounts like RRSP and RRIF accounts
  • Non-spouse beneficiaries can inherit the IRA tax-free

Other issues to note about your IRA

  • Not reportable on form T1135
  • Cannot be split with spouse via pension split rules
  • Can only stretch IRA payments to beneficiaries up to 10 years
  • May be subject to US estate tax

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Disclaimer: The information contained in this Podcast and YouTube video is for information purposes only and should not be construed as tax or financial planning advice. Tax and financial planning rules change from year to year and the information contained within may be outdated. Ensure to engage an experienced and competent tax and financial planner to help you with your tax and financial planning needs.

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2 COMMENTS

  1. You have several articles explaining how it might be advantageous for someone moving to Canada from the US to keep their Roth IRA in the US (and maybe even convert their traditional IRA to Roth to lock in the low US tax rates). Does the same logic hold with Roth 401(k)s as well? Does Canada treat Roth IRAs and Roth 401(k)s the same?

  2. Hi

    Periodic withdrawals on my IRA in annuity in US, also to fill out W-8BEN to
    ensure that only 15% will be withheld per Canada/ USA Tax Treaty
    I’ve researched and found it in Article and paragraph XVIII (2)(a)(b).

    I have reached out to my plan administrator and was informed I could do periodic withdrawals.
    I’m in the process of filling out the forms.
    I have US$ 76,691. I plan to do periodic withdrawal for 5 years as follows:
    US$15500 annually for 3 yrs = $46500
    Remaining $30191 for the last 2 years for $15,096 each year

    I will have them do a direct deposit to my US checking account in Los Angeles.
    Are there any ramifications with that amount being deposited to my US checking account in L.A.? I plan to withdraw
    afterwards and deposit it to my US account in BC, Canada

    Is it correct that my US tax obligation ends after they withhold the 15% tax and I do not need
    to file any US income tax, as this income will be reported in my Canadian income tax return?

    Would this income be designated as Foreign Pension that would enable me to deduct $2k
    personal exemption under Canadian Federal Income Tax and $1K personal exemption for Provincial income Tax?

    This would be my only income for this year plus some interest income of around $1500.

    As mentioned in my initial email to you, I am 61 yrs Canadian residing in BC and I’m not a US citizen.

    Are there any tax traps/ consequences that I should be aware of with the withdrawal strategy stated above?

    Look forward to hearing from you! Stay well and safe!

    Thanks!

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