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
Roll the IRA into a ROTH IRA
Leave the IRA in the US
Transfer the IRA to an RRSP
Transfer the IRA to a Canadian border with both a US and Canadian securities license.
Other issues to note about your IRA
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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 Tax and financial planning rules change from year to year and the information contained within may be outdated.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….(read more)
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Canadians who have US Individual Retirement Accounts (IRAs) may find themselves facing unique challenges when it comes to managing their retirement savings. With complex tax regulations and cross-border issues to navigate, it can be confusing to know what to do with your US IRA as a Canadian resident. Here are 5 options for Canadians with US IRAs to consider:
1. Keep it as is: One option for Canadians with US IRAs is to simply leave the account as is. While this may seem like the easiest choice, it can come with potential tax complications down the road. Canadians residing in Canada must report their US IRA holdings on their annual tax return, and the account may be subject to different tax treatment in Canada compared to the US.
2. Rollover to a Canadian RRSP: Another option is to rollover your US IRA into a Canadian Registered Retirement Savings Plan (RRSP). This can help simplify your retirement savings by consolidating your accounts in one country and potentially reducing any tax implications. However, there may be restrictions and fees associated with transferring funds between countries.
3. Convert to a Roth IRA: Canadians with US IRAs may also consider converting their account to a Roth IRA. This would involve paying taxes on the converted amount upfront, but could provide tax-free growth and withdrawals in the future. It’s important to consider the implications of this option carefully, as it can be irreversible.
4. Cash out the IRA: If you are in need of immediate funds or prefer to simplify your finances, you may choose to cash out your US IRA. However, be aware that this option can come with hefty tax consequences, including potential early withdrawal penalties and withholding taxes.
5. Seek professional advice: Given the complexity of managing a US IRA as a Canadian resident, it’s advisable to seek guidance from a qualified financial advisor or tax professional. They can help you understand your options, evaluate the potential tax implications, and make an informed decision that aligns with your long-term financial goals.
In conclusion, Canadians with US IRAs have a variety of options available to them when it comes to managing their retirement savings. It’s important to carefully consider the pros and cons of each option, and seek expert advice to ensure that you are making the best decision for your individual circumstances. By taking the time to evaluate your options and plan accordingly, you can help ensure a secure and successful retirement.
Hi Phil, this is very helpful. We are dual citizens, Canadian residents, and retired. I assume that when ACATS-transferring our IRA's from a US-based broker holding our IRA's to a cross border broker, there are no new tax implications? The new broker would keep them as US, based IRA investments? Many thanks.
Excellent video! Regarding US Estate taxes: If you are not a US citizen but have a US IRA and are a Canadian resident and Canadian citizen, will the IRA be treated as US situs assets if it holds Canadian stocks/ETFs (ie: no US stocks/ETFs)?
Hey Phil, thanks for the very informative video. Just to clarify, RRSP contribution room is not necessary when transferring the IRA to an RRSP, just the person's income? I have a potential client who's a dual citizen who makes 300K/year, has a 750K IRA but only has 40K in RRSP contribution room.
I just came across this information and it's really useful as we are exploring the option to move to Canada (I am a dual Canadian/American citizen, my wife is a US citizen and my kids are dual citizens). I had read elsewhere that Roth IRAs weren't recognized in Canada and conversely TFSAs weren't recognized in the US. However, I hadn't heard of what you refer to as 'filing the election' so I will need to look into this.
Are there special considerations for Roth 401ks and regular 401ks as well?
I enjoy your podcasts. Is is recommended that a dual citizen (living in Canada) contribute to a RRSP/TFSA? My daughter is a low income earner (less than $30000 and she was told not to contribute to either RRSP or TFSA.
Glad to see this. I opted for option #3. It was quite small when I left US (with the intent of returning), but I stayed in Canada. Now its large. But thanks to TD Ameritrade, I have my funds in a couple of ETFs, easy to manage and it has done well.
Hi Phil. Great videos. One question I have, for someone like me that is a Canadian citizen, residing in Canada but working in US (commuting daily) and contributing to a Roth IRA on an annual basis (since 2017), what happens to my Roth IRA account once I retire (approx at 60) and continue living in Canada?
Hey Phil, great content! For someone with 30-40k in a roth ira with a 22% income tax rate would you consider collapsing? What do you define as small? Thank you!
great vid, a really comprehensive breakdown of the options, well done. i wish this was available before i moved to canada! just wanted to add for anyone not aware that a rollover once in canada counts as a contribution even if you have made the election. i made this mistake, unfortunately.
with regards to brokerage firms that can handle a trad/roth IRA for US expats (related to the "leave the IRA in the US" option), do you have a list or recommendations for ones you know will work? Preferably ones that can take direction with minimal restrictions. i have done some research and spoken with fidelity and schwab and they differ slightly, but do offer a path for a US expat to hold IRAs with them although it is unclear exactly how to set this up depending on which rep you speak with.
following that can you also recommend dual license brokerages that are able to operate in both US and Canada? there seem to be a lot of wealth management firms that can do this with AUM models, but are there any that allow a mix of personal directed investing and managed funds?
Hey Phil, it would be really helpful if you gave examples of numbers when you talk about low/high amounts of IRA or low/high income levels. It helps to put into context which of the options are most applicable to different individuals. Thanks for your videos!
Thanks for this! I'd be very interested in hearing more about the pros and cons (and the process) of rolling an IRA into an RRSP. I'm a US citizen and Canadian permanent resident, and I've got a decent-sized 403b. I'm toying with the idea of transferring it into an RRSP in order to 1) increase my CAD exposure, 2) enable pension splitting and 3) remove the age restriction (as I'm interested in retiring early. Thanks!
Great content Phil. Really helpful for those of us contemplating moving back to Canada. Would be great if you could name (without necessarily endorsing) any brokerages that have the required licenses to advise and manage accounts in both jurisdictions.
A great summary, I assume you will be ok if I will use this for new clients and prospects coming to Canada.