A common problem for US citizens or permanent residents moving to Canada is what to do with an IRA account. Additional contributions are not advisable because they would not be deductible in Canada. For Canadian tax purposes, an IRA or 401(k) (but only to the extent of the employee’s contributions) may be rolled over tax free to a RRSP or RRIF. But no tax free rollover is allowed for US tax purposes, meaning that the owner must pay US income taxes (usually a 15% withholding tax) and the Section 72(t) 10% penalty (if the owner is under 59 ½) on the distribution.
A common strategy is to leave the IRA dormant until the owner is ready to take distributions. However, a number of US brokerage houses are unwilling to hold IRA
accounts for citizens or permanent residents of Canada, which may require
transferring the IRA to a more user friendly broker. Even “friendly” US brokers
limit transactions and trades by such Canadian persons.
US-Canadian tax differences warrant careful planning for moves from one country to the other.