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.
I moved to Canada in 2008 from Texas. I still have a sizable IRA in the US and in order to simplify my life I would like to move the account or funds up to Canada. Of course, I would prefer to pay little or no tax on the transaction. My current broker suggests that I move the IRA to an RRSP however she’s not terribly knowledgeable about how to accomplish the transfer.
If it would be easier to call you please let me know and I’ll give you a ring.
You’ll have a few options available to move the IRA to Canada. I’ll outline some of your options below:
- Collapse the IRA completely and move the money to Canada – This option is relatively easy however very tax inefficient. Depending on how large the IRA is currently you’ll incur a fair amount of tax on the withdrawal of IRA funds. And considering you’ve mentioned the IRA is “sizable” this is likely not a great option for you currently.
- “Roll” the IRA into a ROTH IRA – This is often a great strategy for those living in the US (without Canadian filings) if you anticipate your tax rate to be higher in the future. Unfortunately this option is not advisable as any contribution to a ROTH IRA as a Canadian resident (after moving to Canada) will attract additional Canadian tax.
- Transfer the IRA in kind to a Canadian broker – We have some colleagues in Canada that can manage IRA accounts. That would allow you to maintain the IRA and have the accounts held in Canada. That being said you’ll likely then be dealing with 2 Canadian brokers.
- Transfer the IRA to an RRSP – This is a great option for client that can qualify for the transfer. Generally speaking you’ll need to 2 things to be able to transfer your IRA to an RRSP. First the IRA must be from funds you’re contributed yourself and second, you’ll need to have enough “other Canadian source” income to efficiently ensure the transfer works. In very general terms the IRA to RRSP transfer works like this:
- You collapse your IRA account and pay 15% non-resident tax or the actual amount of tax payable for US residents or Citizens filing in Canada.
- Within 60 days of the year end you contribute these funds to your RRSP.
- You include the IRA distribution on your Canadian tax return with an offsetting deduction for the RRSP contribution (your broker will need to know it’s coming from an IRA as you will not have enough RRSP room for the transfer).
- You’ll take a foreign tax credit for the amount of the IRA inclusion. This will only work if you have enough tax created from other income on your tax return.
The process above may sounds convoluted, but it should be relatively straight forward. We can discuss the process over the phone or in the office if you have time to drop by.
From the options above the 3rd and 4th option are likely the most efficient. If you’re ok working with another broker we can help transfer the funds to Canada and you can withdraw the funds in the future as you tax rate falls.
If you do have enough other Canadian income moving the funds into your RRSP with your current broker may be an option. Note that we can do this transfer over a number of years in order to move the funds into an RRSP.
I would be glad to walk you through the process over the phone or in the office if you have time to drop by. Please give me a call at 250-381-2400 and we can setup a time to chat.