Phil Hogan is a Canadian and US CPA working with clients throughout Canada and the US. Phil advises on cross border tax and financial planning matters. Phil can be reached at phil@beaconhillwm.ca or via telephone at 778.433.1314. You can also read more about Phil at www.Beaconhillwm.ca/team/about-phil/
Receiving and inherited ROTH IRA in Canada
Question
Hi Phil
I live in Ottawa and i just got word that I will be receiving and inherited ROTH IRA from my late Grandmother in the next few months. I actually didn’t know what a ROTH IRA was until I looked it up. It’s not massive, but I think it should be over $50,000.
I don’t need the money right now and was reaching out to see if you had thoughts on what I should be doing with the money. Should I be pulling money out of the ROTH or leaving it in the US. I was also told that it needs to stay in the US or it will be taxed.
Any help would be appreciated.
Regards
XXXXXX
Answer
Hi XXXXXX
Thanks for the email.
You’ll want to consider a few issues related to the ROTH:
- Assuming you’ll be receiving the ROTH before the end of the year you’ll want to ensure that you file the necessary ROTH IRA tax elections with CRA before the deadline of your 2021 Canadian income tax return. The election allows you to ensure the income earned within the ROTH (interest, capital gains, dividends, etc) are deferred from taxation. The election also allows you to withdraw funds from the ROTH tax-free for both Canadian and US purposes.
- if you don’t need the money right now it might make a lot of financial sense to simply leave the money invested in the ROTH and let it grown and compound tax free (for both Canadian and US purposes) for the next 10 years. At the end of 10 years you’ll need to fully withdraw and de-register the money from the ROTH. Make sure to take all the money out of the ROTH before the 10 year window is up to ensure you are not charged a 50% penalty.
- There shouldn’t be any real reporting for the ROTH as it’s specifically excluded from T1135 reporting.
I hope the information above was helpful. Let me know if you have any other questions.
Cheers
Phil
This commentary reflects the personal opinions, viewpoints and analyses of the Beacon Hill Wealth Management Ltd. partner providing such comments, and should not be regarded as a description of advisory services provided by Beacon Hill Wealth Management Ltd. or performance returns of any Beacon Hill Wealth Management Ltd. client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this commentary constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Beacon Hill Wealth Management Ltd. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results. Any discussion about taxation is for educational purposes only and should not be viewed as professional advice. Consult your tax professional for tax advice on your particular situation.
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