Rolling US IRA into a RRSP in Canada -

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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
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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.

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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.
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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.

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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.