Should you keep your IRA while in Canada?

Written by guest blogger: Debbie Wong, CPA, CA, CRPC®

Are you a Canadian resident with a traditional U.S. Individual Retirement Arrangement (IRA) account? You may be thinking about collapsing your traditional IRA or transferring to an RRSP because you want to consolidate your assets in Canada. However, both of those actions are not necessarily in your best interest.

Here are the top five reasons why you would want to keep your IRA:

1. The value of your IRA account is not taxable in Canada upon your death.

• Unlike the value of an RRSP or RRIF account, the IRA account is not included as income upon your death or your spouse’s death if they inherit your IRA.

2. Upon your death, your adult children and other non-spouse beneficiaries can inherit your IRA even if they live in Canada.

• Inheriting an IRA is a tax-free rollover for both Canadian and US tax purposes.
• Your designated beneficiaries will inherit a tax-deferred investment account, unlike Canadian RRSPs and RRIFs, which lose their tax-deferred status upon the death of the last surviving spouse.

3. After your death, the IRA investments can continue to grow many years following your death.

• Your spouse can draw the IRA minimum withdrawals over their lifetime, extending the tax-deferred growth.
• Your adult children can draw as much as they want from the IRA over a period of up to ten years. They have the flexibility to plan strategic withdrawals in low-income years to minimize their income tax. If you died before your required minimums started, they could let the account grow for the maximum period until it is time withdraw the entire amount in the tenth year.

4. Tax on your IRA is only due when withdrawn, for both Canadian and US tax purposes.

• There is no requirement to file a US tax return if you are not a US citizen (non-resident alien) because the 15% US withholding tax is the final liability to the US.
• Periodic payments from an IRA paid to a Canadian resident receive a low withholding rate of 15%, rather than 30% that is applicable to a lump sum withdrawal (full collapse) which would be applicable on IRA transfers to an RRSP.

5. Your IRA investments can remain in USD currency.

• Avoid costly conversion fees and unfavorable foreign exchange rates if you primarily invest in US securities and want to keep both the holdings and any dividends in USD currency.

There may be specific situations that favor withdrawing the IRA completely or transferring it to an RRSP. Our team of cross-border financial advisors can help you understand the tax and financial planning consequences of those decisions.

Are you looking to invest your IRA? Let Plena Wealth Advisors help transfer, manage and invest your retirement accounts. Please  contact us today.

Information in this article is from sources believed to be reliable; however, we cannot represent that it is accurate or complete. It is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell securities. Raymond James advisors are not tax advisors and we recommend that clients seek independent advice from a professional advisor on tax-related matters. The views are those of Plena Wealth Advisors, and not necessarily those of Raymond James Ltd. Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor’s circumstances and risk tolerance before making any investment decision. Raymond James Ltd. is a Member Canadian Investor Protection Fund.

Raymond James (USA) Ltd., member FINRA/SIPC. Raymond James (USA) Ltd. (RJLU) advisors may only conduct business with residents of the states and/or jurisdictions for which they are properly registered.