I am working with a client who moved to the US from Canada about 7 years ago. He and his wife will become US citizens this spring. He is currently 53 years of age.

Husband and wife together have approx. $400,000C in Canadian retirement plans. Due to the current exchange rate between Canadian and US dollars, he sees an opportunity to move the money stateside, which would mean taking a distribution from the plan and paying the taxes. He understands the tax implications, but we are both wondering if the IRS will also demand the 10% pre-mature withdrawal penalty since the funds woulud be coming out of a Canandian plan.

If anyone knows this answer, an IRC citation would also be helpful.