Author Topic: Moving from US to Canada - should I stop contributing to tIRA / 403b / 457?  (Read 10256 times)

FLBiker

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I'm married, and our household income is ~$120K.  We typically use tIRA / 403b / 457 investing to knock this down to ~$65K.  Our thinking (obviously) is that we'd pay more taxes now (with higher income) than in early retirement (with lower income).

However, we're planning to move to Canada next year.  Thus, this probably isn't true.  With that in mind, we converted our tIRA's to Roth IRAs last year.  We still contribute to 403bs / 457bs though.  Should we stop, and just leave that money as taxable?  If we end up moving next year (as opposed to this year) we'll max out our Roth's again, but my thinking is that our tax rate now (22/24% for that 65-120K) is actually lower than it would be in early retirement in Nova Scotia (where it looks like the tax rate on the first $25K is 23.79% and it only goes up from there).  There are a lot of variables around the move, but I'm thinking we'll retire somewhere in the next 5-10 years on something like $50K per year.  Oh, and we're in Florida, so we have no state income tax.

Intellectually, I think the smart thing is to stop contributing to our tax advantaged accounts (other than the Roth IRAs) but that runs so counter to what we've been doing I want to confirm.  Is my thinking right?  Should we just hold the money in our taxable account instead?  And if any other additional info would be helpful, please don't hesitate to ask.

Thanks!

« Last Edit: July 11, 2019, 07:45:14 AM by FLBiker »

salt cured

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However, we're planning to move to Canada next year.  Thus, this probably isn't true.  With that in mind, we converted our tIRA's to Roth IRAs last year.  We still contribute to 403bs / 457bs though.  Should we stop, and just leave that money as taxable?  If we end up moving next year (as opposed to this year) we'll max out our Roth's again, but my thinking is that our tax rate now (22/24% for that 65-120K) is actually lower than it would be in early retirement in Nova Scotia (where it looks like the tax rate on the first $25K is 23.79% and it only goes up from there).  There are a lot of variables around the move, but I'm thinking we'll retire somewhere in the next 5-10 years on something like $50K per year.  Oh, and we're in Florida, so we have no state income tax


I'm no expert but the bolded part above doesn't seem correct (e.g,. https://neuvoo.ca/tax-calculator/Nova+Scotia-25000 though I'm not sure about this source). Also, taxes are individual in Canada. So if you were going to need to withdraw $25k, assuming your assets are split pretty evenly, you could do half and your spouse could do half and each would be taxed only on that half (at a lower rate).

FLBiker

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Interesting, thanks for that.  I was just going off a rate table (https://www.taxtips.ca/priortaxrates/tax-rates-2017-2018/ns.htm), and I wasn't factoring in deductions.  I also didn't realize that taxes were individual in CA.  It seems like it might not be a bad place for early retirement...


salt cured

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The "deductions" listed on that website are just what you would owe on wage income. I'm not sure whether investment income is subject to CPP and UI.

But wait, wouldn't you pay the taxes on deferred income earned in the US to the US?

Goldielocks

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The "deductions" listed on that website are just what you would owe on wage income. I'm not sure whether investment income is subject to CPP and UI.

But wait, wouldn't you pay the taxes on deferred income earned in the US to the US?
Sort of.  You file taxes in Canada (resident) and US (non-resident).  The US taxes paid are a tax credit on your Canadian return, and after Cdn taxes are calculated on full income, you subtract the foreign tax credit and pay the net.

Splitting income in retirement works very well in Canada.   On $29k taxable income each (with the last $6k coming from Roth or TFSA or non-registered selling / cap gains), you have 15.4% average tax rate and 24% marginal rate.

The CPP payout is lower than the SS payouts, typically (although SS seems to be throttled at higher rates?), but then there is the OAS which is paid out based on number of years in Canada, on a pro rated basis, after you have been here for more than 10 years, and are over 65...  so you can move when you are 60, and start receiving payments when you are 70 at 25% of the full OAS amount.  That would help!

If you get a match, keep investing to get it.  For certain.   I would also just max the Roth and keep investing the rest in the tax sheltered accounts for now.  When you have a low income year, you can shift more $$'s from the retirement account into your TFSA / Roth.
« Last Edit: July 13, 2019, 08:38:35 AM by Goldielocks »

FLBiker

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Thanks for all the info!  We're not sure at this point if we'll get CPP or SS (I haven't done my research yet, but as I understand it the credits are somewhat transferable).  Regardless, we're not counting on either in determining our FIRE number.  And OAS will be a nice bonus!

If you get a match, keep investing to get it.  For certain.   I would also just max the Roth and keep investing the rest in the tax sheltered accounts for now.  When you have a low income year, you can shift more $$'s from the retirement account into your TFSA / Roth.

Just to be clear -- we can only transfer from tIRA to rIRA BEFORE moving, right?  Once we move (likely next year) we need to just declare our Roth to the CRA and stop contributing.  We've already converted our tIRAs.  We could theoretically do our 403bs, but we can't convert those until after we're no longer working here, and we'll have landed as PRs before that (we're planning to land in January 2020, move in May / June 2020).  To keep it clean (in terms of Roth contributions) our plan is to keep the 403bs as tIRAs.  Does that make sense?

Goldielocks

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Any roll overs on the US side need to be done while you are resident.

FLBiker

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Any roll overs on the US side need to be done while you are resident.

Just to be clear -- you're talking about Roth rollovers, right?  We could go from a 403b to a tIRA after moving, right?  If not, the timing might be kind of tight because we can't move 403bs until we're no longer working here, and my wife is a 9 month instructor and thus is "employed" over the summer even though we'll be moving over the summer...

Goldielocks

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All rollovers... as far as I am aware.   e.g., 401k to IRA, etc.

kenmoremmm

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Any roll overs on the US side need to be done while you are resident.
not sure if i'll get a response on this old thread, but fingers crossed:
let's say you move to canada in the 2nd half of 2021 and live there for less than half the year (thus not required to pay taxes?). if you did a rollover in 2021 while still a US resident, are you good to go?

Goldielocks

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Re: Moving from US to Canada - should I stop contributing to tIRA / 403b / 457?
« Reply #10 on: December 03, 2020, 02:05:49 PM »
The roll over only works for people that are Canadian Residents.

So, the less than 1/2 year in residence (I assume you mean you intend to return to USA in less than 1/2 year) makes you more of a tourist / working visa sort, and you are fully 100% on USA taxes.

Otherwise -- if you move to Canada now, for permanent living for many year, you declare that on your tax returns (both of them us and Cdn) for this year.   I would wait until the following tax year when you are 100% resident in Canada to do the roll over, although technically you should be able to do it on the part-year return if you are fully Cdn.   

For me, this is to reduce the risk that I move back to the USA for any reason before I have been resident for at least 6 months and my status could then revert back to US expat / tourist.

 For example, if you have a  work visa for a Permanent job in Canada, move in Oct 2020, change residency and file taxed in Feb 2021, and that job gets cancelled after 4 months because of Covid or because it is the wrong fit for you....  You could have the Cdn Resident status questioned or otherwise have some awkward explaining to do, and believe me, the roll over is awkward enough on its own and takes a paper tax return with took until early July to be cleared for me that year.   I don't know how the USA would view it either.   IRS seems to be a bit more aggressive with folk.

kenmoremmm

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Re: Moving from US to Canada - should I stop contributing to tIRA / 403b / 457?
« Reply #11 on: December 03, 2020, 02:54:40 PM »
thanks for the response, but i might be more confused now :(

let me give some more background on my personal situation:
my wife, 2 kids, and i are looking to move to canada to become residents and citizens. because of border closures and general timing issues, i don't see this move occurring until july 2021 or later. so, i would be in canada for <6 months for the 2021 calendar year (tax year?)

my understanding, based on some hurried reading, is that if you have a pre-tax retirement account (trad-401k or IRA), that when you're in canada, you are taxes on those gains as they occur. and, of course, when you take distributions, you will then be taxed at canadian rates (which yes, could be lower).

by doing the rollover from trad to Roth before becoming residents, we would pay at our marginal rate (either 22% or 24%, similar to the OP). no state taxes where i reside.

in general, it seems like it would be cleaner to just have everything be in a Roth. plus, i don't see taxes going down lower than they are now, and my logic says that future taxes need to go up. i have debated on whether to do roth or trad 401k contributions since the trump tax cuts, and ended up with about a 50/50 split.

Goldielocks

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Re: Moving from US to Canada - should I stop contributing to tIRA / 403b / 457?
« Reply #12 on: December 03, 2020, 03:27:09 PM »
Okay, this is from memory so take it as something to look into, not absolute.

1.  If you move permanently in July 2021, then you become resident as you cross the border.  Your tax return looks like 6+ months US resident (filed in US), 6- months Cdn Resident (filed in Canada), 6- months us citizen with world wide income (filed in the US).

2.  I would not do the roll over in 2021, I personally would wait for 2022, if ever.

3.  Because it is in a recognized by tax-treaty retirement account (IRA, ROTH, 401k), you are not taxed on it until you take distributions.

If taken as regular distributions (Pension-like)

4.  The US will take assumed taxes when you withdraw.  You will declare that income on your cdn return, and then also declare "foreign taxes paid" which will subtract from what you owe to Canada taxes.   

If it is rolled over at one go

You can do a one-time roll over from an IRA to an RRSP  after moving to Canada  (401k was not recognized officially in the tax treaty so putting it into an IRA is recommended before you move out of the USA).
so, in 2022 you can do the official roll over to Canadian RRSP, When this happens, the US claims standard withholding tax and may also claim the 10% early penalty (doesn't always happen).  In Canada you file taxes as above, including claiming all of this income and all the IRS taxes and penalty as "foreign taxes paid".  You get a deduct on your tax return for the foreign taxes paid.   

Challenge - for some reason CRA limited my IRA roll over to $275k into my RRSP  Not sure why, not written out specifically in tax treaty but maybe this was the limit they thought possible to accumulate in a pension account in 3 years US employment... note I rolled over after 6 years in Canada so it grew even larger, so maybe that was it, IDK.   

Challenge - To roll over into the RRSP, you need to come up with the cash to make up for the withheld taxes and penalties, immediately, to put the full amount withdrawn into the RRSP account or else you get hit with CDN taxes on the difference (which is in the hands of the IRS).

Challenge - to get full credit for the foreign taxes paid, you need a fairly high income year -- you need lots of Cdn taxes on the return to subtract the foreign taxes from, you won't get $$ back in Canada that were claimed by the USA and no carry over to the next year.. AND the calculation can be a bit tricky, but assume that you need 1.5x in Canadian taxes owed versus the foreign tax credit to make it work.

Roth -- I don't know about this one.  I think you just need to keep it in the USA and withdraw it as you like, because it is tax / penalty free and you don't pay tax on its growth in Canada.  Check - I really forget the specifics on a ROTH because I collapsed mine before moving.

I did not roll over to ROTH, I went from 401K to traditional IRA before I moved to do the roll over after I moved.  Obviously moving $$ into a Roth (ladder, other means) is always a great idea, especially for FIRE.

Yes, having everything in a Roth is a great alternative to this roll over business.  I don't think that you would have any tax worries in a Roth and you can keep it as a ROTH in the USA if your US bank allows Cdn Residents to keep US brokerage accounts (only a small few do this). 

kenmoremmm

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Re: Moving from US to Canada - should I stop contributing to tIRA / 403b / 457?
« Reply #13 on: December 03, 2020, 03:44:21 PM »
much appreciated. so much to learn...

i thought that you were not considered a canadian resident, for tax purposes, until you cross the 6 month mark. hence, why i was thinking that a july (or later) move would push out the residency tax another year.

Goldielocks

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Re: Moving from US to Canada - should I stop contributing to tIRA / 403b / 457?
« Reply #14 on: December 03, 2020, 03:47:24 PM »
It is the INTENT to be permanent for more than 6 months that matters, with substantial ties to Canada.

I don't know what happens when someone needs to go back to the USA unexpectedly after only 4-5 months, though.. do you need to reverse and resubmit all your tax returns under a different status?  IDK, which is why I recommended waiting before a roll over occurs.

FLBiker

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Re: Moving from US to Canada - should I stop contributing to tIRA / 403b / 457?
« Reply #15 on: December 04, 2020, 01:29:42 PM »
Roth -- I don't know about this one.  I think you just need to keep it in the USA and withdraw it as you like, because it is tax / penalty free and you don't pay tax on its growth in Canada.  Check - I really forget the specifics on a ROTH because I collapsed mine before moving.

I did not roll over to ROTH, I went from 401K to traditional IRA before I moved to do the roll over after I moved.  Obviously moving $$ into a Roth (ladder, other means) is always a great idea, especially for FIRE.

Yes, having everything in a Roth is a great alternative to this roll over business.  I don't think that you would have any tax worries in a Roth and you can keep it as a ROTH in the USA if your US bank allows Cdn Residents to keep US brokerage accounts (only a small few do this).

So here's my understanding of a Roth (based on my own research and conversations with a cross-border tax specialist).  You need to do the Roth conversion BEFORE you move, and you should not contribute ANYTHING to the Roth after you move.  In addition, you need to declare your Roth to the CRA when you file your first year's taxes.  If you do this, and you don't contribute ANYTHING more to them, you'll be able to withdraw from them tax free (due to the treaty, which could theoretically change).  If you contribute to the Roth after moving, though, it effectively pollutes the whole thing and renders it taxable (like a traditional IRA).

We converted our tIRAs to Roth the year before we moved.  We won't add anything from here on out, and we'll send letters declaring them to the CRA when we file taxes in April.

And we're keeping our Roths in the US.  We've found US brokerages to be friendlier about keeping tax sheltered stuff as Canadian residents than taxable stuff.

Here's a very helpful blog post about this:
https://crossborderfi.com/all-about-the-roth/

kenmoremmm

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Re: Moving from US to Canada - should I stop contributing to tIRA / 403b / 457?
« Reply #16 on: December 04, 2020, 01:51:52 PM »
thanks FL. your understanding is mine as well. that's kind of why i was asking about converting in a year where you will only have <6 months lived in canada. as it sits, we might move in 2021 (if immigration stuff works out), so we would have 2020 and 2021(?) to do the conversion under US taxes (assuming <6 months would not qualify us as taxable canada residents)

Goldielocks

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Re: Moving from US to Canada - should I stop contributing to tIRA / 403b / 457?
« Reply #17 on: December 04, 2020, 09:23:26 PM »
Roth -- I don't know about this one.  I think you just need to keep it in the USA and withdraw it as you like, because it is tax / penalty free and you don't pay tax on its growth in Canada.  Check - I really forget the specifics on a ROTH because I collapsed mine before moving.

I did not roll over to ROTH, I went from 401K to traditional IRA before I moved to do the roll over after I moved.  Obviously moving $$ into a Roth (ladder, other means) is always a great idea, especially for FIRE.

Yes, having everything in a Roth is a great alternative to this roll over business.  I don't think that you would have any tax worries in a Roth and you can keep it as a ROTH in the USA if your US bank allows Cdn Residents to keep US brokerage accounts (only a small few do this).

So here's my understanding of a Roth (based on my own research and conversations with a cross-border tax specialist).  You need to do the Roth conversion BEFORE you move, and you should not contribute ANYTHING to the Roth after you move.  In addition, you need to declare your Roth to the CRA when you file your first year's taxes.  If you do this, and you don't contribute ANYTHING more to them, you'll be able to withdraw from them tax free (due to the treaty, which could theoretically change).  If you contribute to the Roth after moving, though, it effectively pollutes the whole thing and renders it taxable (like a traditional IRA).

We converted our tIRAs to Roth the year before we moved.  We won't add anything from here on out, and we'll send letters declaring them to the CRA when we file taxes in April.

And we're keeping our Roths in the US.  We've found US brokerages to be friendlier about keeping tax sheltered stuff as Canadian residents than taxable stuff.

Here's a very helpful blog post about this:
https://crossborderfi.com/all-about-the-roth/
Holy shit, batman. NEVER contribute ANYTHING to a registered USA plan while you are a Cdn Resident, and be very very careful of contributing to RESP and TFSA's while you still need to file US non-resident tax returns.  Eyes wide open , dude, to all the havoc that paperwork will create.

FWIW, Wells Fargo completely froze my US IRA accounts about 2 years after I was non-resident in the USA. Because of the extra filing with SEC they need to do.  upon reasearch, there are a few that allow trading on the accounts as non-resident in USA.   Ensure that you can not only keep those accounts, but that they will remain active for your to trade (sell / buy) while out of country.  So yes, keep your Roths in the USA, but with the right brokerage, and never contribute new money to them while outside of country.

kenmoremmm

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Re: Moving from US to Canada - should I stop contributing to tIRA / 403b / 457?
« Reply #18 on: December 04, 2020, 10:41:52 PM »
which brokerage do you two use?

also, tax question, if you will: my understanding of canadian taxes is that there is no MFJ like in the US. how have you found your marginal tax bracket compares to that of the US? for example, in the US, if you file MFJ, your income level doubles for all respective tax brackets. in canada, if i understand correctly, the spouse gets credits and things that can be applied to the other spouse's filing to reduce taxes. correct?

FLBiker

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Re: Moving from US to Canada - should I stop contributing to tIRA / 403b / 457?
« Reply #19 on: December 07, 2020, 01:53:02 PM »
Holy shit, batman. NEVER contribute ANYTHING to a registered USA plan while you are a Cdn Resident, and be very very careful of contributing to RESP and TFSA's while you still need to file US non-resident tax returns.  Eyes wide open , dude, to all the havoc that paperwork will create.

FWIW, Wells Fargo completely froze my US IRA accounts about 2 years after I was non-resident in the USA. Because of the extra filing with SEC they need to do.  upon reasearch, there are a few that allow trading on the accounts as non-resident in USA.   Ensure that you can not only keep those accounts, but that they will remain active for your to trade (sell / buy) while out of country.  So yes, keep your Roths in the USA, but with the right brokerage, and never contribute new money to them while outside of country.

OK -- you kind of freaked me out with that response.  What is the "holy shit" in reference to, exactly?

We didn't contribute anything to our Roth IRAs after moving.  We are contributing to US 403bs, though, because we still technically work for US companies and have required minimum contributions.  My understanding is that this is no big deal because we'll be taxed when we take the money out.  I understand that we're getting double taxed (because Canada won't allow us to deduct the contributions on the front end) but I have to do the minimum so it just is what it is.  And we aren't doing RESP or TFSA's (and don't plan to).  Next year, we'll start doing RRSPs.

Again, though, it would help my heart to know exactly what the holy shit was in regards to. :)

And I'm using a medley of brokerages right now -- I can't move some stuff until my wife and I end our US employment, which should be coming in the next 6 months or so.  TIAA seems international friendly, though.  Fidelity and TD Ameritrade have told me that we're OK with retirement accounts (but not taxable).  Vanguard is NOT international friendly -- they'll lock you down even in an IRA if you change the mailing address to something international.
« Last Edit: December 07, 2020, 01:55:46 PM by FLBiker »

Goldielocks

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Re: Moving from US to Canada - should I stop contributing to tIRA / 403b / 457?
« Reply #20 on: December 08, 2020, 04:43:10 PM »
which brokerage do you two use?

also, tax question, if you will: my understanding of canadian taxes is that there is no MFJ like in the US. how have you found your marginal tax bracket compares to that of the US? for example, in the US, if you file MFJ, your income level doubles for all respective tax brackets. in canada, if i understand correctly, the spouse gets credits and things that can be applied to the other spouse's filing to reduce taxes. correct?
Canadian taxes are more like married file separately.   The lower income can claim medical expenses, education transfers from child, and donations but it really doesn't matter because almost everyone only gets a 15% credit towards those things.

Spousal contributions to RRSP are nice if you have very different incomes and plan to retire early or take money out in 5-10 years in the lower income spouse's name.  There are also good tax things if you separate in terms of rolling over assets to the other person without needing to pay tax.

Instead of MFJ, based on family income, you get a lot of $$ back, depending on low family income, number of kids, etc.  This is calculated based on your tax return, but paid out during the year so most people don't think of it as a part of taxes.

   If you are DINK, then not much benefit.


kenmoremmm

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Re: Moving from US to Canada - should I stop contributing to tIRA / 403b / 457?
« Reply #21 on: December 08, 2020, 04:52:48 PM »
^ yikes. that seems really complicated to me. what a PITA.

i would assume i'll be in the $100-150k range and wife will be in the $40-80k range. but, i would also like to retire in about 6 years.

how does one "roll over" assets?

Goldielocks

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Re: Moving from US to Canada - should I stop contributing to tIRA / 403b / 457?
« Reply #22 on: December 08, 2020, 04:52:59 PM »
Holy shit, batman. NEVER contribute ANYTHING to a registered USA plan while you are a Cdn Resident, and be very very careful of contributing to RESP and TFSA's while you still need to file US non-resident tax returns.  Eyes wide open , dude, to all the havoc that paperwork will create.

FWIW, Wells Fargo completely froze my US IRA accounts about 2 years after I was non-resident in the USA. Because of the extra filing with SEC they need to do.  upon reasearch, there are a few that allow trading on the accounts as non-resident in USA.   Ensure that you can not only keep those accounts, but that they will remain active for your to trade (sell / buy) while out of country.  So yes, keep your Roths in the USA, but with the right brokerage, and never contribute new money to them while outside of country.

OK -- you kind of freaked me out with that response.  What is the "holy shit" in reference to, exactly?

We didn't contribute anything to our Roth IRAs after moving.  We are contributing to US 403bs, though, because we still technically work for US companies and have required minimum contributions.  My understanding is that this is no big deal because we'll be taxed when we take the money out.  I understand that we're getting double taxed (because Canada won't allow us to deduct the contributions on the front end) but I have to do the minimum so it just is what it is.  And we aren't doing RESP or TFSA's (and don't plan to).  Next year, we'll start doing RRSPs.

Again, though, it would help my heart to know exactly what the holy shit was in regards to. :)

And I'm using a medley of brokerages right now -- I can't move some stuff until my wife and I end our US employment, which should be coming in the next 6 months or so.  TIAA seems international friendly, though.  Fidelity and TD Ameritrade have told me that we're OK with retirement accounts (but not taxable).  Vanguard is NOT international friendly -- they'll lock you down even in an IRA if you change the mailing address to something international.

Well, the entire registered account (if money added after your have a new country of residence) could be considered now as no longer a pension account that is covered by the tax treaty between countries.  So you could get charged taxes on its growth in one country, while the other country treats it as pension and then charges full tax on withdrawal.  Because of the different years of taxation, you would pay full taxes twice.

and then there is the paperwork associated with "Trusts", and the horror of working through all that paperwork to clear things up because the IRS or CRA has deemed something non-registered that should be registered.. .and you find out 5 years after the tax year so you don't have a good paper trail anymore, but they hit you with 5 years of penalties..  ah.  nightmare for Goldielocks.

I am not sure about the minimum contributions.  You could tell them you are no longer resident and have them not contribute for you / contribute to a non-registered, pay you cash, contribute to Cdn account?  I would check with a cross -border accountant on that one.    It seems like something benign... but maybe not.

The closest I can compare is my uncle, who worked for 2 years overseas for a Cdn oil company.  While away, he was considered to be continuing cdn and taxes / treated as a resident (without provincial taxes), and received his pension money.  They had to fill out a form, and he was never considered to be a full resident of Indonesia during the temporary work relocation.  The paperwork is clear that the intent was return to Canada.  In this case, he would not have been allowed to contribute to any local country pensions or registered accounts.
When he decided to stay for the long term, he went into a different status and no longer paid into Canada's CPP and other systems, and was considered a resident of Indonesia.

Goldielocks

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Re: Moving from US to Canada - should I stop contributing to tIRA / 403b / 457?
« Reply #23 on: December 08, 2020, 04:57:59 PM »
^ yikes. that seems really complicated to me. what a PITA.

i would assume i'll be in the $100-150k range and wife will be in the $40-80k range. but, i would also like to retire in about 6 years.

how does one "roll over" assets?
Nope, not half as tricky as the US tax returns.  Everything is pretty automatic with an easy to complete CDN return, that works for province, federal and family benefits.

Roll over to spouse only happens with a death or breakdown of a marriage-like relationship.

Better - Once you start contributing to an RRSP, just set up a spousal RRSP and contribute to that.  Then stop for > 3 years while you only contribute to an RRSP in your own name.   After that 3+ years your wife can withdraw, penalty free, at her tax bracket, from the spousal rrsp.  if you don't wait the 3 years with no new $$ added, then it is taxed in your hands at your tax bracket.

Roll over from US IRA to CDN RRSP -- I detailed that above, or on another thread in the CDN TAXES forum.

FLBiker

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Re: Moving from US to Canada - should I stop contributing to tIRA / 403b / 457?
« Reply #24 on: December 08, 2020, 05:19:09 PM »
I am not sure about the minimum contributions.  You could tell them you are no longer resident and have them not contribute for you / contribute to a non-registered, pay you cash, contribute to Cdn account?  I would check with a cross -border accountant on that one.    It seems like something benign... but maybe not.

OK, thanks for clarifying.  I've been talking with a crossborder tax advisor in Halifax and he said 1) don't put anything in the Roth after you move and 2) try not to put anything in 403b or 457 because your contribution would effectively be double taxed -- taxed by Canada the year I contribute, and then taxed again when I take it out (along with all the rest of the money that's in there, which should be taxed on withdrawal).  So it isn't perfect that I'm getting taxed on the income that I'm contributing, but it's unavoidable considering I'm still working for that employer (which is my best option right now).

And to echo what you said about tax rates, I don't know what our marginal rate will be, but we were pleasantly surprised to get ~$3000 per year for child benefit (despite having not yet filed taxes).

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Re: Moving from US to Canada - should I stop contributing to tIRA / 403b / 457?
« Reply #25 on: December 08, 2020, 05:25:07 PM »
I am not sure about the minimum contributions.  You could tell them you are no longer resident and have them not contribute for you / contribute to a non-registered, pay you cash, contribute to Cdn account?  I would check with a cross -border accountant on that one.    It seems like something benign... but maybe not.

OK, thanks for clarifying.  I've been talking with a crossborder tax advisor in Halifax and he said 1) don't put anything in the Roth after you move and 2) try not to put anything in 403b or 457 because your contribution would effectively be double taxed -- taxed by Canada the year I contribute, and then taxed again when I take it out (along with all the rest of the money that's in there, which should be taxed on withdrawal).  So it isn't perfect that I'm getting taxed on the income that I'm contributing, but it's unavoidable considering I'm still working for that employer (which is my best option right now).

And to echo what you said about tax rates, I don't know what our marginal rate will be, but we were pleasantly surprised to get ~$3000 per year for child benefit (despite having not yet filed taxes).

I recommend going to your employer and asking them to stop the contributions and just pay you cash income, instead because of the double taxation.   They may go for it.  They may give you a tiny raise to make up for the extra tax, or they may do nothing.
Your accountant is likely correct that the double tax is still less than no contributions at all.

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Re: Moving from US to Canada - should I stop contributing to tIRA / 403b / 457?
« Reply #26 on: December 27, 2020, 05:34:21 PM »
@Chaplin some of your experiences might help in this above discussion

I'm glad that you have discovered the in reality very low taxes in Canada @FLBiker you end up paying. When you factor in all the required paid vacations, paid statutory holidays, dependant credits, paid maternity (if applicable), paid healthcare, GST rebates, Canadian Child Benefit and other social support bonuses we do extremely well here. Sure in the US the marginal tax rate may be lower but then you need to pay for so many things with that net income including your high health care premiums which here are all rolled into our social health care system.
« Last Edit: December 27, 2020, 06:02:17 PM by Stasher »

Chaplin

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Re: Moving from US to Canada - should I stop contributing to tIRA / 403b / 457?
« Reply #27 on: December 27, 2020, 06:46:08 PM »
@Chaplin some of your experiences might help in this above discussion

I'm glad that you have discovered the in reality very low taxes in Canada @FLBiker you end up paying. When you factor in all the required paid vacations, paid statutory holidays, dependant credits, paid maternity (if applicable), paid healthcare, GST rebates, Canadian Child Benefit and other social support bonuses we do extremely well here. Sure in the US the marginal tax rate may be lower but then you need to pay for so many things with that net income including your high health care premiums which here are all rolled into our social health care system.

My experience might only help a teeny, tiny bit. I benefitted enormously from Goldielocks' experience. First, because she mentioned that IRAs could be transferred into RRSPs in a thread I happened to be reading, and then because she sent me detailed instructions and helped with further questions I had. That transfer was a major simplification of my journey to FIRE.

I lived in the US for almost five years and returned to Canada in 2003. I had a regular IRA (technically a "SIMPLE" IRA, but it was treated like a regular IRA) and a Roth IRA. My situation was simpler because I didn't work for a year after moving, so I didn't have US and Canadian income in the same year, and then didn't do much with those investments until 2018, and that was only because of that comment from Goldielocks that let me know that the tax treaty made it was possible to move an IRA into an RRSP. I had withdrawn the contributions (I think) from the Roth IRAs earlier because that was allowed under US tax law since that was after-tax money anyway. I didn't have a 401K or any other fancy stuff like tIRA, 428, etc.

The only real advice I have is to try to clean things up before the move and then get help. In my case, Goldielocks put me on the right path and allowed me to speak semi-intelligently when I finally found a tax person who could do US and Canadian tax filings. I've almost always done my own taxes, but the year I moved to Canada I got help, and the year I did the IRA to RRSP transfer I got help.

Stasher is right, the headline tax rates appear higher, but it seems to me that FIRE is easier in Canada thanks to some characteristics of RRSPs (easier to contribute, not tied to an employer, etc. and no age requirement for withdrawals) and relative simplicity of healthcare. Healthcare seems to be the biggest wildcard and fear for US FIREes.

I assume you've already sorted this out, but when I see sentences like "we plan to move to Canada, become citizens, FIRE there, etc." I wonder if there's an awareness that just like any country, there are limitations on who and how that can be accomplished. Is this an employer-sponsored move, or based on citizenship eligibility due to parents, or something else?

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Re: Moving from US to Canada - should I stop contributing to tIRA / 403b / 457?
« Reply #28 on: February 02, 2021, 05:05:52 PM »
I keep trying to get my expat uncle, who moved overseas and is now 72, to return to Canada.  He won't because of the super low tax rates he pays there, BUT I keep telling him, it is like "reverse taxes" in Canada once you are in your 70's... the money flows to you (if you are a citizen for quite a few years), instead of away from you. 

From stats can tables.. Federal and provincial individual effective tax rates:
In Canada 2018, the lowest income 50% of population aged 65+ paid approx. $177 per person in taxes net of OAS and other transfers received.  The 50th percentile income (upper limit income) was $46k for this group.

The next quartile paid $750 per person.   Heck, the top 25% of age 65+ income earners paid $5400/per person /yr in net taxes... that includes basic doctor / medical care such as at a hospital or for outpatient care.

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Re: Moving from US to Canada - should I stop contributing to tIRA / 403b / 457?
« Reply #29 on: February 03, 2021, 05:34:48 AM »
Thanks all!

We're working with a crossborder tax guy for this first year (and likely the second as well as I'm still getting paid by a US company for 2021 -- they're engaging a PEO in July at which time things will be more straightforward).  And this isn't a move prompted by my employer (but it is supported by them) -- we just wanted to move to Canada.  We're both US citizens and went through the permanent residency application process.

In terms of taking care of things ahead of time, we did what we could (one big thing was converting our trad IRAs to Roth, and then not touching them).  The other big thing was avoiding PFICs with our taxable account -- so we opened a US-denominated account at Questrade for our taxable investments.  As far as our tax sheltered stuff, we haven't moved anything yet (some we can't because we are still employed with those employers) but we certainly may once we start getting close to withdrawals.  And, for us, the trad IRA will not be our first withdrawal, as it has the age limit (unlike the 457).

And we'll definitely keep relying on expertise in this area.  Thanks!

kenmoremmm

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Okay, this is from memory so take it as something to look into, not absolute.

1.  If you move permanently in July 2021, then you become resident as you cross the border.  Your tax return looks like 6+ months US resident (filed in US), 6- months Cdn Resident (filed in Canada), 6- months us citizen with world wide income (filed in the US).

2.  I would not do the roll over in 2021, I personally would wait for 2022, if ever.

3.  Because it is in a recognized by tax-treaty retirement account (IRA, ROTH, 401k), you are not taxed on it until you take distributions.

If taken as regular distributions (Pension-like)

4.  The US will take assumed taxes when you withdraw.  You will declare that income on your cdn return, and then also declare "foreign taxes paid" which will subtract from what you owe to Canada taxes.   

If it is rolled over at one go

You can do a one-time roll over from an IRA to an RRSP  after moving to Canada  (401k was not recognized officially in the tax treaty so putting it into an IRA is recommended before you move out of the USA).
so, in 2022 you can do the official roll over to Canadian RRSP, When this happens, the US claims standard withholding tax and may also claim the 10% early penalty (doesn't always happen).  In Canada you file taxes as above, including claiming all of this income and all the IRS taxes and penalty as "foreign taxes paid".  You get a deduct on your tax return for the foreign taxes paid.   

Challenge - for some reason CRA limited my IRA roll over to $275k into my RRSP  Not sure why, not written out specifically in tax treaty but maybe this was the limit they thought possible to accumulate in a pension account in 3 years US employment... note I rolled over after 6 years in Canada so it grew even larger, so maybe that was it, IDK.   

Challenge - To roll over into the RRSP, you need to come up with the cash to make up for the withheld taxes and penalties, immediately, to put the full amount withdrawn into the RRSP account or else you get hit with CDN taxes on the difference (which is in the hands of the IRS).

Challenge - to get full credit for the foreign taxes paid, you need a fairly high income year -- you need lots of Cdn taxes on the return to subtract the foreign taxes from, you won't get $$ back in Canada that were claimed by the USA and no carry over to the next year.. AND the calculation can be a bit tricky, but assume that you need 1.5x in Canadian taxes owed versus the foreign tax credit to make it work.

Roth -- I don't know about this one.  I think you just need to keep it in the USA and withdraw it as you like, because it is tax / penalty free and you don't pay tax on its growth in Canada.  Check - I really forget the specifics on a ROTH because I collapsed mine before moving.

I did not roll over to ROTH, I went from 401K to traditional IRA before I moved to do the roll over after I moved.  Obviously moving $$ into a Roth (ladder, other means) is always a great idea, especially for FIRE.

Yes, having everything in a Roth is a great alternative to this roll over business.  I don't think that you would have any tax worries in a Roth and you can keep it as a ROTH in the USA if your US bank allows Cdn Residents to keep US brokerage accounts (only a small few do this).

After talking to my cross border tax accountant to day, and reflecting back on this thread, I realized that the "rollover" GL was talking about was from IRA to RRSP. The rollover I had been talking about (incorrectly, perhaps) was from IRA to Roth. So, I think we're good here.

After reading through the rest of the thread, I am curious what the benefit is to roll an IRA into an RRSP. Could someone give me the cliff notes version? I will read more tonight.

Also, I am curious what the benefit is with having investments in a taxable account that is then taxed by the CRA? It seems like you would be paying through the nose for that account, right? Or is there a 15% tax like in the US?

Lastly, I learned (but I question) that my investments in 506c offerings (real estate syndications like self storage and mobile home parks) are basically going to be double taxed now. In the US, I will have depreciation recapture to pay at the end of the holding period (when asset is liquidated). In Canada, even though the syndication for me is an LP invested in an LLC, it sounds like the 'distributions' that are reported on the K-1 will be treated like income and taxed accordingly. So, that kind of blows up my plan to put $500k of cash (sale of a rental and net between new home purchase and existing home sale) to work in this types of investments and roll happily in $40k of passive income each year. I might need a second opinion on this one...

FLBiker

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After reading through the rest of the thread, I am curious what the benefit is to roll an IRA into an RRSP. Could someone give me the cliff notes version? I will read more tonight.

Also, I am curious what the benefit is with having investments in a taxable account that is then taxed by the CRA? It seems like you would be paying through the nose for that account, right? Or is there a 15% tax like in the US?

I'm interested in the answer to that first question as well -- so far, my plan is to leave our 403bs as is, but we could theoretically roll them into a tIRA then RRSP.  And the 457s and Roths we'll definitely leave as is.

Re: the second question, I don't get the sense that investments are so heavily taxed (but I haven't dug into my tax return yet).  The bigger factor, though, was that no US broker would let us keep our taxable there, and holding it in USD at a Canadian brokerage allows us to both alleviate this problem while also avoiding PFIC paperwork.  Tax advantaged would obviously be better, but I don't think it would make a difference to hold our taxable holdings in the US if we could find a broker who would do it.  The nice thing about Questrade is they give us both a 1099 and a T5.

kenmoremmm

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After reading a bit more on taxable (and I still have plenty to read): it sounds like you pay 50% of your capital gains (price - basis) and then are taxed at your income tax rate. So, if you pull money while you're working, this could be on the order of a 25% overall tax (50% x 50% marginal tax bracket). But, if you no longer have income, you could be in a 20% bracket and thus would have a 10% effective tax, which sounds pretty good to me in the grand scheme of things.

FLBiker

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After reading a bit more on taxable (and I still have plenty to read): it sounds like you pay 50% of your capital gains (price - basis) and then are taxed at your income tax rate. So, if you pull money while you're working, this could be on the order of a 25% overall tax (50% x 50% marginal tax bracket). But, if you no longer have income, you could be in a 20% bracket and thus would have a 10% effective tax, which sounds pretty good to me in the grand scheme of things.

This is my understanding, too.  Plus, the cost basis gets set when you cross the border.  Our taxable account has gotten much more attractive to me as a withdrawal source in early retirement.

EnjoyTheJourney

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One thing to figure into your planning is the difference in available deductions for US residents and US non-residents (for tax purposes).

US residents are used to having a fair number of deductions available, while US non-residents have very few. Thus, the effective tax rate of US non-residents tends to be higher than for US residents.

You'd likely benefit from weighing whether the tax credit you receive from paying US taxes on withdrawals from tax-deferred investment vehicles exceeds the taxes you'd be paying in Canada. Also, this fact might make the decision to convert US dollar amounts into RRSPs a more appealing proposition, in case that makes sense for you (not sure about whether conversion to RRSPs makes sense for you, admittedly, but it seems relevant to mention that option).

Goldielocks

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After reading through the rest of the thread, I am curious what the benefit is to roll an IRA into an RRSP. Could someone give me the cliff notes version? I will read more tonight.

Also, I am curious what the benefit is with having investments in a taxable account that is then taxed by the CRA? It seems like you would be paying through the nose for that account, right? Or is there a 15% tax like in the US?

I'm interested in the answer to that first question as well -- so far, my plan is to leave our 403bs as is, but we could theoretically roll them into a tIRA then RRSP.  And the 457s and Roths we'll definitely leave as is.

Re: the second question, I don't get the sense that investments are so heavily taxed (but I haven't dug into my tax return yet).  The bigger factor, though, was that no US broker would let us keep our taxable there, and holding it in USD at a Canadian brokerage allows us to both alleviate this problem while also avoiding PFIC paperwork.  Tax advantaged would obviously be better, but I don't think it would make a difference to hold our taxable holdings in the US if we could find a broker who would do it.  The nice thing about Questrade is they give us both a 1099 and a T5.

Hi, all.

I have been mostly away from MMM for a few months, but popped back to reply here.

I rolled over my IRA to the RRSP for a few reasons.

1.  To keep my IRA in the USA, I would have had to move it from Wells Fargo to a bank (TD Ameritrade) that allowed canadians to trade their IRAs left in US hands.  This was quite a bit of work to figure out after I was no longer in the USA.  Wells Fargo froze my IRA account.  I could only call a broker and instruct "sell all",  I could not partially sell, or buy or rebalance.

2.  The bigger reason is that my IRA became an RRSP.  RRSPs are much preferred because you do not have an early withdrawal penalty and I was planning to FIRE well before 65.  AND there was no withdrawal penalty when I rolled it over to the RRSP.  So I essentially "unlocked" a US IRA in one go.

3.  Finally, I did not expect to return to the USA to retire, and so I wanted to move more of my retirement funds, maybe half, into CDN dollars.  I am a sincere believer that you want a substantial part of your retirement money in the currency that you will retire in, to avoid currency fluctuations, which are actually quite random compared to steady stock market gains.

Having the money close also meant reducing the number of accounts that I had to manage when rebalancing.
« Last Edit: July 08, 2021, 03:49:15 PM by Goldielocks »

kenmoremmm

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After reading through the rest of the thread, I am curious what the benefit is to roll an IRA into an RRSP. Could someone give me the cliff notes version? I will read more tonight.

Also, I am curious what the benefit is with having investments in a taxable account that is then taxed by the CRA? It seems like you would be paying through the nose for that account, right? Or is there a 15% tax like in the US?

I'm interested in the answer to that first question as well -- so far, my plan is to leave our 403bs as is, but we could theoretically roll them into a tIRA then RRSP.  And the 457s and Roths we'll definitely leave as is.

Re: the second question, I don't get the sense that investments are so heavily taxed (but I haven't dug into my tax return yet).  The bigger factor, though, was that no US broker would let us keep our taxable there, and holding it in USD at a Canadian brokerage allows us to both alleviate this problem while also avoiding PFIC paperwork.  Tax advantaged would obviously be better, but I don't think it would make a difference to hold our taxable holdings in the US if we could find a broker who would do it.  The nice thing about Questrade is they give us both a 1099 and a T5.

Hi, all.

I have been mostly away from MMM for a few months, but popped back to reply here.

I rolled over my IRA to the RRSP for a few reasons.

1.  To keep my IRA in the USA, I would have had to move it from Wells Fargo to a bank (TD Ameritrade) that allowed canadians to trade their IRAs left in US hands.  This was quite a bit of work to figure out after I was no longer in the USA.  Wells Fargo froze my IRA account.  I could only call a broker and instruct "sell all",  I could not partially sell, or buy or rebalance.

2.  The bigger reason is that my IRA became an RRSP.  RRSPs are much preferred because you do not have an early withdrawal penalty and I was planning to FIRE well before 65.  AND there was no withdrawal penalty when I rolled it over to the RRSP.  So I essentially "unlocked" a US IRA in one go.

3.  Finally, I did not expect to return to the USA to retire, and so I wanted to move more of my retirement funds, maybe half, into CDN dollars.  I am a sincere believer that you want a substantial part of your retirement money in the currency that you will retire in, to avoid currency fluctuations, which are actually quite random compared to steady stock market gains.

Having the money close also meant reducing the number of accounts that I had to manage when rebalancing.
Wait, so did you put your IRA into RESP or RRSP? Seems like you're saying both, unless I'm misreading.

FLBiker

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After reading through the rest of the thread, I am curious what the benefit is to roll an IRA into an RRSP. Could someone give me the cliff notes version? I will read more tonight.

Also, I am curious what the benefit is with having investments in a taxable account that is then taxed by the CRA? It seems like you would be paying through the nose for that account, right? Or is there a 15% tax like in the US?

I'm interested in the answer to that first question as well -- so far, my plan is to leave our 403bs as is, but we could theoretically roll them into a tIRA then RRSP.  And the 457s and Roths we'll definitely leave as is.

Re: the second question, I don't get the sense that investments are so heavily taxed (but I haven't dug into my tax return yet).  The bigger factor, though, was that no US broker would let us keep our taxable there, and holding it in USD at a Canadian brokerage allows us to both alleviate this problem while also avoiding PFIC paperwork.  Tax advantaged would obviously be better, but I don't think it would make a difference to hold our taxable holdings in the US if we could find a broker who would do it.  The nice thing about Questrade is they give us both a 1099 and a T5.

Hi, all.

I have been mostly away from MMM for a few months, but popped back to reply here.

I rolled over my IRA to the RRSP for a few reasons.

1.  To keep my IRA in the USA, I would have had to move it from Wells Fargo to a bank (TD Ameritrade) that allowed canadians to trade their IRAs left in US hands.  This was quite a bit of work to figure out after I was no longer in the USA.  Wells Fargo froze my IRA account.  I could only call a broker and instruct "sell all",  I could not partially sell, or buy or rebalance.

2.  The bigger reason is that my IRA became an RRSP.  RRSPs are much preferred because you do not have an early withdrawal penalty and I was planning to FIRE well before 65.  AND there was no withdrawal penalty when I rolled it over to the RRSP.  So I essentially "unlocked" a US IRA in one go.

3.  Finally, I did not expect to return to the USA to retire, and so I wanted to move more of my retirement funds, maybe half, into CDN dollars.  I am a sincere believer that you want a substantial part of your retirement money in the currency that you will retire in, to avoid currency fluctuations, which are actually quite random compared to steady stock market gains.

Having the money close also meant reducing the number of accounts that I had to manage when rebalancing.

This is very appealing to me as well, particularly for reasons 2 and 3.  I was under the impression, though, that you could take a big tax hit doing this.  Can you say a bit more about exactly how you did it, and what was withheld along the way?  And also, are you a US citizen?  I am, so maybe that makes it more problematic.  I love the idea of getting more of my money into an account I can access earlier and in CDN, though.

Goldielocks

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After reading through the rest of the thread, I am curious what the benefit is to roll an IRA into an RRSP. Could someone give me the cliff notes version? I will read more tonight.

Also, I am curious what the benefit is with having investments in a taxable account that is then taxed by the CRA? It seems like you would be paying through the nose for that account, right? Or is there a 15% tax like in the US?

I'm interested in the answer to that first question as well -- so far, my plan is to leave our 403bs as is, but we could theoretically roll them into a tIRA then RRSP.  And the 457s and Roths we'll definitely leave as is.

Re: the second question, I don't get the sense that investments are so heavily taxed (but I haven't dug into my tax return yet).  The bigger factor, though, was that no US broker would let us keep our taxable there, and holding it in USD at a Canadian brokerage allows us to both alleviate this problem while also avoiding PFIC paperwork.  Tax advantaged would obviously be better, but I don't think it would make a difference to hold our taxable holdings in the US if we could find a broker who would do it.  The nice thing about Questrade is they give us both a 1099 and a T5.

Hi, all.

I have been mostly away from MMM for a few months, but popped back to reply here.

I rolled over my IRA to the RRSP for a few reasons.

1.  To keep my IRA in the USA, I would have had to move it from Wells Fargo to a bank (TD Ameritrade) that allowed canadians to trade their IRAs left in US hands.  This was quite a bit of work to figure out after I was no longer in the USA.  Wells Fargo froze my IRA account.  I could only call a broker and instruct "sell all",  I could not partially sell, or buy or rebalance.

2.  The bigger reason is that my IRA became an RRSP.  RRSPs are much preferred because you do not have an early withdrawal penalty and I was planning to FIRE well before 65.  AND there was no withdrawal penalty when I rolled it over to the RRSP.  So I essentially "unlocked" a US IRA in one go.

3.  Finally, I did not expect to return to the USA to retire, and so I wanted to move more of my retirement funds, maybe half, into CDN dollars.  I am a sincere believer that you want a substantial part of your retirement money in the currency that you will retire in, to avoid currency fluctuations, which are actually quite random compared to steady stock market gains.

Having the money close also meant reducing the number of accounts that I had to manage when rebalancing.
Wait, so did you put your IRA into RESP or RRSP? Seems like you're saying both, unless I'm misreading.

I am only referring to the RRSP here.  If I typed RESP anywhere (I can't find it), it was a typo.

Goldielocks

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After reading through the rest of the thread, I am curious what the benefit is to roll an IRA into an RRSP. Could someone give me the cliff notes version? I will read more tonight.

Also, I am curious what the benefit is with having investments in a taxable account that is then taxed by the CRA? It seems like you would be paying through the nose for that account, right? Or is there a 15% tax like in the US?

I'm interested in the answer to that first question as well -- so far, my plan is to leave our 403bs as is, but we could theoretically roll them into a tIRA then RRSP.  And the 457s and Roths we'll definitely leave as is.

Re: the second question, I don't get the sense that investments are so heavily taxed (but I haven't dug into my tax return yet).  The bigger factor, though, was that no US broker would let us keep our taxable there, and holding it in USD at a Canadian brokerage allows us to both alleviate this problem while also avoiding PFIC paperwork.  Tax advantaged would obviously be better, but I don't think it would make a difference to hold our taxable holdings in the US if we could find a broker who would do it.  The nice thing about Questrade is they give us both a 1099 and a T5.

Hi, all.

I have been mostly away from MMM for a few months, but popped back to reply here.

I rolled over my IRA to the RRSP for a few reasons.

1.  To keep my IRA in the USA, I would have had to move it from Wells Fargo to a bank (TD Ameritrade) that allowed canadians to trade their IRAs left in US hands.  This was quite a bit of work to figure out after I was no longer in the USA.  Wells Fargo froze my IRA account.  I could only call a broker and instruct "sell all",  I could not partially sell, or buy or rebalance.

2.  The bigger reason is that my IRA became an RRSP.  RRSPs are much preferred because you do not have an early withdrawal penalty and I was planning to FIRE well before 65.  AND there was no withdrawal penalty when I rolled it over to the RRSP.  So I essentially "unlocked" a US IRA in one go.

3.  Finally, I did not expect to return to the USA to retire, and so I wanted to move more of my retirement funds, maybe half, into CDN dollars.  I am a sincere believer that you want a substantial part of your retirement money in the currency that you will retire in, to avoid currency fluctuations, which are actually quite random compared to steady stock market gains.

Having the money close also meant reducing the number of accounts that I had to manage when rebalancing.

This is very appealing to me as well, particularly for reasons 2 and 3.  I was under the impression, though, that you could take a big tax hit doing this.  Can you say a bit more about exactly how you did it, and what was withheld along the way?  And also, are you a US citizen?  I am, so maybe that makes it more problematic.  I love the idea of getting more of my money into an account I can access earlier and in CDN, though.

I am Canadian, but if there was any income action in the year I rolled this over, on the US side, I would have had to file with the IRS that year as a non-resident.

Yes, there can be big tax hits if you do this when you don't have much income that year.

To do this, you need to have a year where your income taxes in Canada are quite large, because of the way the taxes work -- you pay IRS on one side (withheld at 15%), and get a credit on Canada tax return for foreign taxes paid, but it only takes your Canadian tax bill to zero instead of refunding money to you.  So if your foreign taxes paid to the IRS are more than your canadian tax bill otherwise, you do pay more tax.   

The roll over is a one time deal as well.  You can take regular pension distributions with low tax impacts after retirement age, but not more lump sums after the first time.

The rollover was capped at $275k for me as well, the rest of it was not taxed, net-net, but did absorb a lot of my remaining RRSP room.

FLBiker

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After reading through the rest of the thread, I am curious what the benefit is to roll an IRA into an RRSP. Could someone give me the cliff notes version? I will read more tonight.

Also, I am curious what the benefit is with having investments in a taxable account that is then taxed by the CRA? It seems like you would be paying through the nose for that account, right? Or is there a 15% tax like in the US?

I'm interested in the answer to that first question as well -- so far, my plan is to leave our 403bs as is, but we could theoretically roll them into a tIRA then RRSP.  And the 457s and Roths we'll definitely leave as is.

Re: the second question, I don't get the sense that investments are so heavily taxed (but I haven't dug into my tax return yet).  The bigger factor, though, was that no US broker would let us keep our taxable there, and holding it in USD at a Canadian brokerage allows us to both alleviate this problem while also avoiding PFIC paperwork.  Tax advantaged would obviously be better, but I don't think it would make a difference to hold our taxable holdings in the US if we could find a broker who would do it.  The nice thing about Questrade is they give us both a 1099 and a T5.

Hi, all.

I have been mostly away from MMM for a few months, but popped back to reply here.

I rolled over my IRA to the RRSP for a few reasons.

1.  To keep my IRA in the USA, I would have had to move it from Wells Fargo to a bank (TD Ameritrade) that allowed canadians to trade their IRAs left in US hands.  This was quite a bit of work to figure out after I was no longer in the USA.  Wells Fargo froze my IRA account.  I could only call a broker and instruct "sell all",  I could not partially sell, or buy or rebalance.

2.  The bigger reason is that my IRA became an RRSP.  RRSPs are much preferred because you do not have an early withdrawal penalty and I was planning to FIRE well before 65.  AND there was no withdrawal penalty when I rolled it over to the RRSP.  So I essentially "unlocked" a US IRA in one go.

3.  Finally, I did not expect to return to the USA to retire, and so I wanted to move more of my retirement funds, maybe half, into CDN dollars.  I am a sincere believer that you want a substantial part of your retirement money in the currency that you will retire in, to avoid currency fluctuations, which are actually quite random compared to steady stock market gains.

Having the money close also meant reducing the number of accounts that I had to manage when rebalancing.

This is very appealing to me as well, particularly for reasons 2 and 3.  I was under the impression, though, that you could take a big tax hit doing this.  Can you say a bit more about exactly how you did it, and what was withheld along the way?  And also, are you a US citizen?  I am, so maybe that makes it more problematic.  I love the idea of getting more of my money into an account I can access earlier and in CDN, though.

I am Canadian, but if there was any income action in the year I rolled this over, on the US side, I would have had to file with the IRS that year as a non-resident.

Yes, there can be big tax hits if you do this when you don't have much income that year.

To do this, you need to have a year where your income taxes in Canada are quite large, because of the way the taxes work -- you pay IRS on one side (withheld at 15%), and get a credit on Canada tax return for foreign taxes paid, but it only takes your Canadian tax bill to zero instead of refunding money to you.  So if your foreign taxes paid to the IRS are more than your canadian tax bill otherwise, you do pay more tax.   

The roll over is a one time deal as well.  You can take regular pension distributions with low tax impacts after retirement age, but not more lump sums after the first time.

The rollover was capped at $275k for me as well, the rest of it was not taxed, net-net, but did absorb a lot of my remaining RRSP room.

Thanks for this!  That makes sense.

When you say it's a one time deal, do you mean one time per IRA account, or one timer per person?  I have a trad IRA and a 403b -- would I have to combine them first?  I don't know that I'd have the income to make it make sense taxwise, particularly if I had to combine everything.

Goldielocks

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The way the treaty is written, I would say 1x per account.

They don't want you taking $20k randomly over 6 years and roll it over.  They want a one time roll over, OR set up uniform payments (like social security or a pension), to fall under the tax treaty rules.

I am not sure if a 403b is written into the treaty, and if not, if it would be treated like an IRA.  I had to convert my 401K into a regular (not a roth) IRA before moving, then rolled over the regular IRA.

Here is a fairly recent, easy to read, article on it for non-us citizens
https://www.advisor.ca/tax/estate-planning/transferring-a-401k-or-ira-to-canada/

Recommended

I used an Sunlife older article on how to do this.  It was more technical and therefore much more helpful for me, but there may be changes.  You can google it.  here is a slightly different white paper from Sunlife than the one  I used (but more recent)  https://www.sunlifeglobalinvestments.com/content/dam/sunlife/regional/canada/documents/slgi/810-5100-06-21-foreign-pensions-plans-web-en.pdf

This whitepaper has a lot of links to the correct IRS / CRA  and tax treaty sites directly.  Very valuable.

Happy reading!
« Last Edit: July 23, 2021, 06:12:56 PM by Goldielocks »

DualFIRE

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Hello!

The information in this thread and others on similar Canada/US topics has been enormously helpful as I plan my investment strategyÖ so thank you all!

Iím a dual US/Canadian citizen who returned to Canada in 2020 with my wife (Canadian citizen, US perm res) after many years working in the US. We moved back unexpectedly in 2020 because of remote work possibilities, so I was not able to plan in advance and covert our tIRAs to Roths as many have recommended. If yíall wouldnít mind taking a look at my plan and letting me know if you see any flaws, Iíd be most appreciative!

1.   Move joint taxable US brokerage account from Vanguard to Questrade.
2.   Move tIRAs from Vanguard to TD Ameritrade, which will allow me to rebalance (sell/buy ETFs) within the plans even if I have a Canadian address.
3.   Roll over my 403(b) (Iím no longer employed by a US org) from TIAA to my tIRA, which by then will be at TDA.
4.   If we have high-income years, roll over our tIRAs to RRSPs.

One of my big concerns at the moment is the PFICs @FLBiker mentions. I hold VCN in a taxable Questrade account, which would qualify as a PFIC, no? I worked with a tax preparer you recommended in another thread for my 2020 Canadian taxes, and Iím surprised he didnít mention it!

Thanks again!

FLBiker

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Iím a dual US/Canadian citizen who returned to Canada in 2020 with my wife (Canadian citizen, US perm res) after many years working in the US. We moved back unexpectedly in 2020 because of remote work possibilities, so I was not able to plan in advance and covert our tIRAs to Roths as many have recommended. If yíall wouldnít mind taking a look at my plan and letting me know if you see any flaws, Iíd be most appreciative!

1.   Move joint taxable US brokerage account from Vanguard to Questrade.
2.   Move tIRAs from Vanguard to TD Ameritrade, which will allow me to rebalance (sell/buy ETFs) within the plans even if I have a Canadian address.
3.   Roll over my 403(b) (Iím no longer employed by a US org) from TIAA to my tIRA, which by then will be at TDA.
4.   If we have high-income years, roll over our tIRAs to RRSPs.

One of my big concerns at the moment is the PFICs @FLBiker mentions. I hold VCN in a taxable Questrade account, which would qualify as a PFIC, no? I worked with a tax preparer you recommended in another thread for my 2020 Canadian taxes, and Iím surprised he didnít mention it!

1-3 all look good to me.  I will say, though, that TDA has been acquired by Schwab so it's possible that they may change their policy re: allowing folks to hold IRA's in Canada.  So far, though, nothing has changed.

4 sounds reasonable in theory, but I honestly don't fully understand the issues around this.  I love the idea of rolling some of my IRA into an RRSP but I haven't yet gotten a clear understanding of exactly what that entails.

And yes, I *think* you're right that VCN would be a PFIC.  My taxable is very simple (just VTI and VXUS) though so I don't have any direct experience with it.