IRA to Canada: a how-to guide to rollovers (works for 401(k)s too)

Do you have a 401(k) or IRA sitting at a U.S. wealth management company, and have you been asked to find a new investment firm because you reside in Canada? This quick guide explains rollovers and walks you through how a dual-licensed cross-border advisor can help you roll that money over to your own IRA held in Canada.

What is a rollover?

In general, a rollover is the movement of funds from one eligible retirement account to another (IRA to IRA, Roth IRA to Roth IRA, 401(k) to IRA, and so on). There are no age restrictions on rollovers, and if a rollover is done properly and all the rules are followed, generally no taxes or penalties are imposed on the distribution being rolled over. A rollover also encourages long-term retirement savings by allowing you to continue the tax-deferred growth of the distribution you receive from another IRA or a qualified plan.

The 60-day time limit

A rollover contribution must generally be made by the 60th day after the day the distribution is received from the distributing IRA. This is the case whether the 60-day period ends in the same year as the distribution or in the following year. Even if a distribution made in one year is rolled over within 60 days in the following year, it is still treated as rolled over, and therefore not taxable, in the year the distribution occurred. The IRS may, on application, waive the 60-day requirement where failing to do so would be against equity or good conscience, such as a casualty, disaster or other event beyond your reasonable control.

One more limit: you can make only one IRA-to-IRA 60-day rollover in any 12-month period, no matter how many IRAs you own. Direct trustee-to-trustee transfers and 401(k)-to-IRA rollovers do not count against that limit, which is one reason a direct transfer is almost always the better route.

The same property must be rolled over

A rollover is tax free only if the same property that was distributed from the IRA is subsequently contributed to the same or a new IRA. If the distribution consists of cash, only cash can be rolled over; if it consists of in-kind property, only the same in-kind property can be rolled over. This applies even if the value of the in-kind distribution goes up or down during the 60-day period, and even if only some of the shares or property is rolled over.

Why are you being asked to leave your current advisor?

In 2009, the Canadian Securities Administrators adopted a rule, National Instrument 31-103, that restricts the ability of U.S.-based financial services companies to conduct business with Canadian residents. It created a nationwide registration system for securities firms doing business in Canada. Since then, most wealth management firms in the United States have reviewed this legislation and decided to eliminate these accounts, given the small amount of assets compared with their other assets under management and the cost of being compliant.

More about taxes

In general, you can roll over your 401(k) money to an IRA without incurring any taxes. This is called a direct rollover and is the most common type. In some special cases, such as employer stock in your 401(k) or non-deductible contributions, you’ll need to dig into the tax details because there are additional planning opportunities available. But most 401(k) rollovers are very straightforward. As always, check with your cross-border tax advisor to ensure you’re making the correct tax elections for your specific circumstances.