U.S. Retirement Accounts: IRA, Roth IRA and Roth 401(k)

The MoneyReady App offers limited support for U.S. retirement accounts retained by Canadian residents. Cross-border tax rules are complicated and can depend on the account’s history, the owner’s citizenship and residence, contributions made after moving to Canada, and elections filed with the Canada Revenue Agency. Consult a qualified cross-border tax advisor when necessary.

Select the type that most closely describes the account:

1. IRA: Use this for traditional IRAs, SEP IRAs, SIMPLE IRAs, 408(k), 403(b), traditional 401(k) and similar plans that are not Roth accounts.
2. Roth 401(k): Use this for a designated Roth account held within a 401(k) plan.
3. Roth: Use this for a Roth IRA.

Accounts imported from Wealthica may have only a general IRA, Roth or 401(k) designation. Review the imported account and select the correct type, particularly when the account is a Roth 401(k).

These accounts belong to one individual and cannot be held jointly. If you have a spouse, select the correct owner. If you change the owner, the account’s investments will also be reassigned and its priorities will be reviewed.

If you have a spouse, select whether the spouse or another person is the beneficiary. When the spouse is selected, the TIME MACHINE treats an account inherited by the surviving spouse as the spouse’s own account.

The MoneyReady App does not model the special distribution schedules for inherited IRAs, including cases in which a spouse keeps the account as an inherited IRA instead of treating it as their own. It also does not model the distribution schedule of a non-spouse beneficiary. The beneficiary designation held by the U.S. financial institution remains the legally relevant designation.

The TIME MACHINE assumes that the owner is now permanently resident in Canada and does not make further contributions to these U.S. accounts. Deposits are therefore disabled.

This assumption is particularly important for Roth accounts. A contribution made after becoming resident in Canada can affect the account’s treatment under the Canada–U.S. tax treaty. The MoneyReady App does not determine whether a contribution, transfer or conversion qualifies for treaty protection.

The TIME MACHINE assumes that investment growth within these accounts is not currently taxable.

Withdrawals from a traditional IRA or other non-Roth account are treated as taxable income in Canada. The TIME MACHINE also estimates U.S. withholding tax and includes it in cash flow. That withholding tax may generate a foreign tax credit, but the app cannot guarantee that the entire credit will be usable.

Withdrawals from Roth IRAs and Roth 401(k)s are assumed to be qualified and tax-free. The app does not determine whether the applicable holding-period, treaty-election or other requirements have been satisfied.

The TIME MACHINE does not treat withdrawals from these accounts as eligible pension income for the Canadian pension income credit or for pension income splitting.

The TIME MACHINE normally avoids withdrawals before the account owner reaches age 59½. You may enter an AUTOMATIC WITHDRAWAL before that age when you know that an exception applies. A warning will be shown, but the MoneyReady App does not determine whether the withdrawal qualifies for an exception and does not calculate the U.S. additional tax on an early withdrawal.

Enter the account’s balance on December 31 of the previous year, expressed in Canadian dollars. This is used to estimate the Required Minimum Distribution for the current year. It is different from the account’s current balance, which is calculated from its investments.

Enter the gross amount already withdrawn during the current calendar year, before withholding tax, expressed in Canadian dollars. The TIME MACHINE uses this amount when determining how much of the estimated Required Minimum Distribution remains to be withdrawn.

Update the previous year-end balance at the beginning of every calendar year. Update the amount withdrawn whenever a withdrawal is made.

Required Minimum Distributions are minimum annual withdrawals required under U.S. tax rules. Their calculation generally uses the account balance at the end of the previous year and an IRS life-expectancy factor.

The TIME MACHINE estimates RMDs for traditional IRA-type accounts using the IRS Uniform Lifetime Table. It does not delay the first RMD until April of the following year because that could result in two taxable distributions being received in the same calendar year.

The current account balance is calculated as the sum of its investments and cannot be edited here. To update the current balance, growth rates, currencies, fees or asset allocation, edit the investments held in the account.

The account will be saved and you will continue to its investments. Return to this form at the beginning of each year and whenever a withdrawal is made.

For current rules, consult the IRS information about Required Minimum Distributions and the CRA information about the taxation of Roth IRAs.