Rolling US IRA into a RRSP in Canada -


David,
 
My husband and I moved back to Canada after working in the US on TN visas for the last 8 years. WE moved back in Feb 2007.  He left behind a 401k with 50K in it. I left behind a 401K with 5K and a simple IRA with 8K in it.  The company that was managing my Simple IRA has just sent me a letter stating that they no longer are able to manage it because they are not lincesned to provide financial services in Canada. I am not sure what I should do.  Ideally we would like to keep our 401K there because we many end up moving back there one day. CAn I roll the simple IRA into my 401K even though I am no longer a resident?
I appreciate any help you can offer. 
Is there a station that we can listen to your program here in Toronto?

-------------------------------------------------
david ingram replies:
 
You can listen to the Sunday morning Show on the Internet at www.600am.com Sunday fr4om 9 to 10:30 Vancouver time which is noon to 1:30 PM Toronto time.
 
Darrell Thompson at Blackmont Securities in Toronto is capable of looking after your US IRA but the amount of $8,000 is not enough to bother with.  You can NOT roll an IRA into a 401(K) but you can roll a 401(K) into an IRA..
 
Assuming that you have an earned income in Canada, I suggest that you cash it in, pay the US tax and penalty and roll it over into a Canadian RRSP OR just pay the tax and take the balance and pay down your Canadian mortgage.
 
These older questions might help
 
QUESTION:

Hello,
    I was on H1 in US for 6 years before moving to Canada as a permanent resident in April 2007. I have a 401k account from my old company whom I left a couple of months ago. I also have a Roth IRA and a brokerage account. I would like to close all these accounts and use these as a downpayment for my house. Trying to get to 20% downpayment to avoid CMHC fee. When should I withdraw(this year or next year) and what would be the best way to avoid/minimise any withholdings? I have a Canadian mailing address. Initially I was thinking of doing all this next year to avoid paying any taxes this year, but if the financial institutions are going to withhold taxes because I am a non-resident, it will make matters worse. Thanks

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david ingram replies:

Withholding tax is not the problem.  The withholding tax is only that, a withholding tax.  The actual withdrawals will be taxable at the end of the year on your tax return and will usually have a further tax liability.

Taking the money out of your 401(K) before you are 59 1/2 for instance, generates an additional 10% penalty.  However, if you are taking it out to buy a house, up to $10,000 is penalty free.

Off the top of my head, I would say you are better off to roll the 401K into an IRA.  Then take the IRA out and roll some or all into a Canadian RRSP next year.

$20,000 can then be withdrawn under Canadian rules to buy a house.  It becomes taxable over 15 years or you can pay back one 1/15th a year over 15 years to avoid the tax but you are usually better off to pay down the mortgage and pay tax on the 1/15th.,

On next year's US income tax, the IRA would come out at the lowest US rate and although taxable in Canada would be a rollover deduction and then you would get a foreign tax credit on your Canadian return for the foreign tax paid to the US.  That would leave you with a 10% penalty on the excess over $10,000 US but no or very little of actual tax paid at this time.  You would, of course, have a tax to pay when you withdrew it from your Canadian RRSP in the future.

It may also be that you would just be better off paying the tax and using the excess as a down payment.  If having $5,000 more cash (at a tax bill of $3,000) saves you $5,000 in CMHC fees, it is worth it.

Sit down and do a spread sheet.

This older question may help as well.
---------------------------------------------------------------
 
Hi,

I have recently moved back to Canada from the US and I have a couple
questions about rolling a 401(k) into an RRSP (I know in general
this is not the best financial practice, but it looks like this
would be the best way for me to get access to the funds to use as
a down payment on a property).

1.  I know it's possible to roll and IRA into an RRSP.  Is it
    possible to do so with a 401(k).  From everybody I have talked to
    so far I am getting mixed signals as to whether this is possible,
    or I have to roll the 401(k) into an IRA first.

2.  What documentation, if any, do I need to show that I am rolling
    the 401(k), or the IRA, into an RRSP, so that it simply does
    not look like a contribution.

Thanks!
------------------------------------------------------------------------------------------------------------
david ingram replies:

I am including a prior reply as an answer.

------------------------------------------------------------------------------------

Dear Sir,
Question

I have been working in California for the 5 years on H1 visa  and have 401 plan(about 40K)
What should I do with this plan , when I will move to Canada ( I'm a PR.)
Move it to IRA or other option .
Thank you very much

_____________________________________________________________________________________

david ingram replies:
------------------------------------------



QUESTION: Hello,

In the US since 2001 and there is a 50-50 chance I will move back to Canada
in 2007 or beginning of 2008. What should I do with the following:

1.401K : I have a 50K+. Should I let it grow? Rollover in a IRA? should I
withdraw when I know for sure that I will move back? (I heard you can
rollover an IRA or 401K into a RRSP) what are the tax implications?

2. In the event I move to Canada, can I use my 401k or IRA toward the
purchase of my first home and not be taxed on my withdrawal.(I currently
rent in the US and never bought a property in Canada) Will the US recognize
a property bought in Canada as eligible for the first time home buyer
program?

3. We wanted to contribute to a Coverdell education saving account this year
for our first child. Will Canada tax me upon distribution?

4. Is there a best time to move back to Canada, (late 2007 or beginning of
2008)

Thank you for your time
----------------------------------------------------
david ingram replies:

Your 401(K) can be rolled to an IRA.  Your IRA can then be rolled into an
RRSP but the US will not recognize it as a rollover and want to penalize you
10% for early withdrawal if you have not yet reached the exalted age of 59
1/2 at the time of withdrawal.

By buying a house, you can exempt up to $10,000 of the withdrawal from the
10% penalty.

Rolling it into the RRSP involves reporting the IRA as income on your
Canadian return and then claiming the deduction for the rollover. Because
the tax paid to the is a foreign tax credit in Canada, you get to claim the
tax paid to the USA against other income in Canada.

Therefore, it is necessary to have significant other income in Canada for
you to get the equivalent of a tax free rollover.  In other words, do NOT
move to Canada at the end of a year.  You should move at the start of a
year, i.e. Jan 15 to May 15 or so that you can get a lower tax rate on your
IRA withdrawal in the USA and maximum benefit for the foreign tax credit in
Canada.

The alternate if you do move at the end of a year is to wait until the next year to do the rollover.  

Done properly, and with the RRSP money in the account long enough in Canada,
you can then withdraw up to $20,000 Canadian (tax deferred) to use as a down
payment on your Canadian house.

------
the following previous email talks about it as well.


QUESTION:

worked in CA for 4 yrs. returned to BC in Apr.'04.  Need to transfer my
retirement fund but having difficulties with bank and credit union.  US
specifies that I must roll it over to IRA accounts (Individual retirement
account.  I do not want to be subject to the 20% withholding fee for IRS.
What would be the best way to get the funds to me here in Canada.
======================================
david ingram replies:

1.  move it to an IRA and leave it there in one of the world's strongest
economies.  Most financial advisors are trying to get "more" of their
clients' money into US funds.

2.    If you just have to have it in Canada, you have to cash it in in the
US and pay your tax to the US.  take what is left, add the amount (even if
borrowed) of the tax you paid to the US and buy your Canadian RRSP.  That
will give you a tax deduction which should be larger than the tax you paid
to the US.

When you get the refund, pay back the loan.  You will have transferred the
money quite handily.

The amount you took out is also taxable on your Canadian return.  Pay that
tax with the tax you paid to the US as a foreign tax credit.

You will likely need help.

Don Walkow of Seabank Capital Management in Surrey, BC is one Canadian who
can help you with the process while you are still in the United States.  His
licensing allows him to deal with 401(K) plans, IRA's, RRSP's and straight
securities in any state in the US - He is one of two people I know of who
can do this. - His North American telephone number is 1-800-541-9952 and you
can find out more at www.seabankcapital.com.

Darrell Thompson of Blackmont Securities is the other person and is located
in Toronto.  His phone number is 866-775-7704

If you are in Canada and in BC in particular, Fred Snyder, host of "Its Your
Money" every Sunday Morning from 9:00 to 10:30 AM Vancouver Time can also
look after you but can NOT talk to you if you are in the US. (999 out of
1,000 other Representatives in Canada can NOT talk to you either).  You can
listen to this Canadian Program (I am a guest on the fourth Sunday of every
month) live at www.600am.com.

----------------------------------
Answers to this and other similar  questions can be obtained free on Air
every Sunday morning.

Every Sunday at 9:00 AM on 600AM in Vancouver, Fred Snyder of Dundee Wealth
Management and I will be hosting an INFOMERCIAL but LIVE talk show called
"ITS YOUR MONEY"

Those outside of the Lower Mainland will be able to listen on the internet
at

www.600AM.com

Local phone calls to (604) 280-0600 - Long distance calls to 1-866-778-0600.

Old shows are archived at the site.


On November 10, 2007, David Ingram wrote:

It is very unlikely that blind or unexpected email to me will be answered.  I receive anywhere from 100 to 700  unsolicited emails a day and usually answer anywhere from 2 to 20 if they are not from existing clients.  Existing clients are advised to put their 'name and PAYING CUSTOMER' in the subject line and get answered first.  I also refuse to be a slave to email and do not look at it every day and have never ever looked at it when I am out of town.  e bankruptcy expert  US Canada Canadian American  Mexican Income Tax help
However, I regularly search for the words"PAYING CUSTOMER" and always answer them first if they did not get spammed out. For the last two weeks, I have just found out that my own email notes to myself have been spammed out and as an example, as I write this on Oct 18, 2007 since June 16th (124 days), my 'spammed out' box has 34,939 unread messages, my deleted box has 11854 I have actually looked at and deleted and I have actually answered 1078 email questions for clients and strangers without sending a bill.  I have also put aside 622 messages that I am maybe going to try and answer because they look interesting. -e bankruptcy expert  US Canada Canadian American  Mexican Income Tax help
Therefore, if an email is not answered in 24 to 36 hours, it is likely lost in space.  You can try and resend it but if important AND YOU TRULY WANT OR NEED AN ANSWER from 'me', you will have to phone to make an appointment.  Gillian Bryan generally accepts appointment requests for me between 10:30 AM and 4:00 PM Monday to Friday VANCOUVER (Seattle, Portland, Los Angeles) time at (604) 980-0321.  david ingram expert  US Canada Canadian American  Mexican Income Tax help.
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Disclaimer:  This question has been answered without detailed information or consultation and is to be regarded only as general comment.   Nothing in this message is or should be construed as advice in any particular circumstances. No contract exists between the reader and the author and any and all non-contractual duties are expressly denied. All readers should obtain formal advice from a competent and appropriately qualified legal practitioner or tax specialist for expert help, assistance, preparation, or consultation  in connection with personal or business affairs such as at www.centa.com. If you forward this message, this disclaimer must be included." e bankruptcy expert  US Canada Canadian American  Mexican Income Tax help.
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This is not intended to be definitive but in general I am quoting $900 to $2,900 for a dual country tax return.
$900 would be one T4 slip one W2 slip one or two interest slips and you lived in one country only (but were filing both countries) - no self employment or rentals or capital gains - you did not move into or out of the country in this year.
 
$1,100 would be the same with one rental
 
$1,300 would be the same with one business no rental
 
$1,300 would be the minimum with a move in or out of the country. These are complicated because of the back and forth foreign tax credits. - The IRS says a foreign tax credit takes 1 hour and 53 minutes.
 
$1,600 would be the minimum with a rental or two in the country you do not live in or a rental and a business and foreign tax credits  no move in or out

$1,700 would be for two people with income from two countries

$2,900 would be all of the above and you moved in and out of the country.
 
This is just a guideline for US / Canadian returns
 
We will still prepare Canadian only (lives in Canada, no US connection period) with two or three slips and no capital gains, etc. for $200.00 up.
 
With a Rental for $400, two or three rentals for $550 to $700 (i.e. $150 per rental) First year Rental - plus $250.
 
A Business for $400 - Rental and business likely $550 to $700
 
And an American only (lives in the US with no Canadian income or filing period) with about the same things in the same range with a little bit more if there is a state return.
 
Moving in or out of the country or part year earnings in the US will ALWAYS be $900 and up.
 
TDF 90-22.1 forms are $50 for the first and $25.00 each after that when part of a tax return.
 
8891 forms are generally $50.00 to $100.00 each.
 
18 RRSPs would be $900.00 - (maybe amalgamate a couple)
 
Capital gains *sales)  are likely $50.00 for the first and $20.00 each after that.

Catch - up returns for the US where we use the Canadian return as a guide for seven years at a time will be $150 to $500.00 per year depending upon numbers of bank accounts, RRSP's, existence of rental houses, self employment, etc.

Just a guideline not etched in stone.
 
 
This from "ask an income trusts tax and immigration expert" from www.centa.com or www.jurock.com or www.featureweb.com. David Ingram deals on a daily basis with expatriate tax returns with multi jurisdictional cross and trans border expatriate problems  for the United States, Canada, Mexico, Great Britain, United Kingdom, Kuwait, Dubai, Saudi Arabia, Thailand, Indonesia, Japan, China, New Zealand, France, Germany, Spain, Italy, Russia, Georgia, Brazil, Peru, Ecuador, Bolivia, Scotland, Ireland, Hawaii, Florida, Montana, Morocco, Israel, Iraq, Iran, India, Pakistan, Afghanistan, Mali, Bangkok, Greenland, Iceland, Cuba, Bahamas, Bermuda, Barbados, St Vincent, Grenada,, Virgin Islands, US, UK, GB, and any of the 43 states with state tax returns, etc. Rockwall, Dallas, San Antonio Houston, Denmark, Finland, Sweden Norway Bulgaria Croatia Income Tax and Immigration Tips, Income Tax  Immigration Wizard Antarctica Rwanda Guru  Consultant Specialist Section 216(4) 216(1) NR6 NR-6 NR 6 Non-Resident Real Estate tax specialist expert preparer expatriate anti money laundering money seasoning FINTRAC E677 E667 105 106 TDF-90 Reporting $10,000 cross border transactions Grand Cayman Aruba Zimbabwe South Africa Namibia help USA US Income Tax Convention. Advice on bankruptcy  e bankruptcy expert  US Canada Canadian American  Mexican Income Tax help.

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