While resident in the US, individuals often save for retirement in a US Traditional IRA or Roth IRA. Prior to moving to Canada, it is important to consider the Canadian tax impacts as well, including the ability to defer Canadian tax.
Traditional IRAs
Fortunately, a US traditional IRA is eligible for continued tax-deferred status in Canada, under both the Canadian Income Tax Act and the Canada-US tax treaty. Even so, some may consider the feasibility of transferring funds to Canada as a way of consolidating assets in one country and simplifying an estate plan.
Roth IRAs
Roth IRAs are similar to Canadian Tax-Free Savings Accounts. As a Tax-Free Savings Account does not enjoy a tax-free status on a US tax return, US Roth IRAs generally do not enjoy tax deferral benefits under the Canadian Income Tax Act. This means that the income earned in a Roth IRA is generally taxable in the year earned. While tax deferral in Canada is not automatic, it is possible to file an election for the deferral of tax in a US Roth IRA with the CRA.
401(k)s
US 401(k) plans are generally akin to Canadian defined contribution plans. It’s name is derived from the section of the US Internal Revenue Code that authorizes it. Under the Canada-US Income Tax Treaty, Canadians residents may continue to enjoy tax deferrals on earnings in a 401(k).
Transfers to RRSPs
The amount withdrawn from a US retirement plan is taxable in Canada in the year of withdrawal. If certain conditions are met, it may be possible to transfer retirement funds to a Canadian RRSP. However, such transfers require careful planning and assessment of tax considerations to be beneficial in the long run.
Factors to assess include US tax implications on early withdrawal and the ability to claim foreign tax credits in Canada for taxes paid in the US.
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Karlene J. Mulraine, EA, CPA, CA, CPA (NH) is the President of Cross-Border Financial Professional Corporation. Follow us on Linkedin and Twitter, or hang out on Facebook.
The views expressed in this article are those of the author and should not be relied on to make decisions. Consider discussing your specific circumstances with an appropriate specialist.