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A Canadian Citizen with money in US 401k

A Canadian Citizen with money in US 401k

Old Jun 16th 2003, 1:41 pm
  #1  
Scoobydoo
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Default A Canadian Citizen with money in US 401k

Hi,

I'm a Canadian citizen thinking about moving back home from several years
living in the US. Over those years I have built up my 401k.

Now, I'm wondering if I can just leave it here in the US or if I have to
roll it over into something else if I return to Canada.

Does anyone here have any idea???
________________________
 
Old Jun 16th 2003, 2:01 pm
  #2  
Nick B.
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Default Re: A Canadian Citizen with money in US 401k

You can leave it in the United States without any problem. As a US citizen
you'd be wise to continue investing in a Roth IRA as well after your arrival
in Canada as the IRS, for ludicrous technical reasons, does not recoginize
tax deferral in an RRSP.



"scoobydoo" wrote in message
news:[email protected]...
    > Hi,
    > I'm a Canadian citizen thinking about moving back home from several years
    > living in the US. Over those years I have built up my 401k.
    > Now, I'm wondering if I can just leave it here in the US or if I have to
    > roll it over into something else if I return to Canada.
    > Does anyone here have any idea???
    > ________________________
 
Old Jun 16th 2003, 2:31 pm
  #3  
Vladimir Menkov
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Default Re: A Canadian Citizen with money in US 401k

In article ,
Nick B. wrote:
    >You can leave it in the United States without any problem. As a US citizen
    >you'd be wise to continue investing in a Roth IRA as well after your arrival
    >in Canada as the IRS, for ludicrous technical reasons, does not recoginize
    >tax deferral in an RRSP.

(1) Not quite; the US-Canada tax treaty provides for the IRS
recognizing the income deferral in a RRSP, as long as the RRSP was
created from contributions made *while a resident of Canada*; which
means, that, strictly speaking, a RRSP funded by a rollover from an
IRA will not be recognized by the IRS.

(2) By the same treaty, CCRA will recognize deferral in a *regular*
IRA account, but not in a 401(k) or a Roth IRA; so the migrating
taxpayer may find it desirable to roll over the funds from his 401(k)
plan to an IRA; it is better to do it while still a resident of the
USA.

(3) Domestic Canadian law allows for a tax-free rollover from an IRA
to an RRSP. However, if the taxpayer remains a US citizen, this may
not be a suitable course of action due to (1). Moreover, holding a
stateside IRA allows one to own US mutual funds in a tax-efficient
way, not available to him otherwise.

See any good Canadian tax guide for details; there are such books in any
Canadian library.

--vld.
 
Old Jun 16th 2003, 2:32 pm
  #4  
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Joined: Nov 2002
Location: New Jersey
Posts: 69
Applicant is an unknown quantity at this point
Default

As a Canadian citizen wouldn't one have a pay a huge tax if you move and cash out your US 401K plan back to Canada?

What would be the smartest thing to do - if one were to shell out their US 401K funds and move them permanently to Canada.
IRA? Money Mkt?

Thanks!
Applicant is offline  
Old Jun 16th 2003, 3:51 pm
  #5  
Vladimir Menkov
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Default Re: A Canadian Citizen with money in US 401k

In article ,
Applicant wrote:
    >As a Canadian citizen wouldn't one have a pay a huge tax if you move and
    >cash out your US 401K plan back to Canada?
    >What would be the smartest thing to do - if one were to shell out their
    >US 401K funds and move them permanently to Canada.
    >IRA? Money Mkt?

Step 1: roll over from 401 (k) to IRA *while still a US resident*.
This is a tax-free event in the USA (under domestic US law), and
a non-even in Canada (as you are not a resident in Canada yet).

Step 2: no step 2, really. Just keep the IRA. The US-Canada tax treaty
allows you to defer the income until teh distribution, so that the
same distribution, when it happens, will be a taxable event in both
countries simultaneously.

There is a large choice of IRA-eligible mutual funds in the USA, both
load and no-load Benham (I guess it's called American Century now) has
(or used to have, at any event) good money market funds, Vanguard good
index funds and some sector funds... Look at Morningstar.com to choose
something suitable for your goals.

--vld.
 
Old Jun 16th 2003, 4:12 pm
  #6  
Scoobydoo
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Default Re: A Canadian Citizen with money in US 401k

An interesting strategy. However, I am still a Canadian citizen. So, if I
roll my 401k into a regular (not Roth) IRA....

1. can I just leave it alone until my retirement?
2. will I pay tax on both sides of the border when I cash the IRA if I'm
living in Canada when I cash out (remember, I am a Canadian citizen)?
3. will I need to tell Revenue Canada anything about it until I cash, and
then only if I'm living in Canada?

(thanks for all the information so far)


"Vladimir Menkov" wrote in message
news:[email protected]...
    > In article ,
    > Applicant wrote:
    > >
    > >As a Canadian citizen wouldn't one have a pay a huge tax if you move and
    > >cash out your US 401K plan back to Canada?
    > >
    > >What would be the smartest thing to do - if one were to shell out their
    > >US 401K funds and move them permanently to Canada.
    > >IRA? Money Mkt?
    > Step 1: roll over from 401 (k) to IRA *while still a US resident*.
    > This is a tax-free event in the USA (under domestic US law), and
    > a non-even in Canada (as you are not a resident in Canada yet).
    > Step 2: no step 2, really. Just keep the IRA. The US-Canada tax treaty
    > allows you to defer the income until teh distribution, so that the
    > same distribution, when it happens, will be a taxable event in both
    > countries simultaneously.
    > There is a large choice of IRA-eligible mutual funds in the USA, both
    > load and no-load Benham (I guess it's called American Century now) has
    > (or used to have, at any event) good money market funds, Vanguard good
    > index funds and some sector funds... Look at Morningstar.com to choose
    > something suitable for your goals.
    > --vld.
 
Old Jun 16th 2003, 4:46 pm
  #7  
Vladimir Menkov
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Posts: n/a
Default Re: A Canadian Citizen with money in US 401k

In article ,
scoobydoo wrote:
    >An interesting strategy. However, I am still a Canadian citizen. So, if I
    >roll my 401k into a regular (not Roth) IRA....
    >1. can I just leave it alone until my retirement?

sure.

    >2. will I pay tax on both sides of the border when I cash the IRA if I'm
    >living in Canada when I cash out (remember, I am a Canadian citizen)?

I think so; but you should be able to claim foreign tax credit on your
Canadian tax return, so the sum total is likely to be the same as if
you only paid the Canadian tax.

    >3. will I need to tell Revenue Canada anything about it until I cash, and
    >then only if I'm living in Canada?

I don't think there is any statement you should file with CCRA. (This
is not symmetric, by the way: if you live in the USA and maintain an
RRSP back in Canada, you may have to file an anual statement with IRS,
even though no tax is due.)

See some useful cross-broder tax links at

http://dmoz.org/Regional/North_Ameri...International/

--vld.
 
Old Jul 1st 2003, 5:06 am
  #8  
Stephen C. Gallagher
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Default Re: A Canadian Citizen with money in US 401k

Since Canada does not have the equivalent of a US Roth IRA
(a retirement account where you pay tax on the contribution
when it's earned, but no tax on the interest/dividends later
generated by the account), does this mean that a Canadian
resident who has a US Roth IRA should be declaring any
earnings from these accounts each year to the CCRA?

Stephen Gallagher
 
Old Jul 1st 2003, 5:10 am
  #9  
Nick B.
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Default Re: A Canadian Citizen with money in US 401k

To the best of my knowledge, you do not have to report earnings in a Roth
IRA to CCRA... All my financial planning texts recommend Americans resident
in Canada contribute to Roths since the Americans do not recognize RRSP's.

I'll check for sure and get back to you.

"Stephen C. Gallagher" wrote in
message news:[email protected]...
    > Since Canada does not have the equivalent of a US Roth IRA
    > (a retirement account where you pay tax on the contribution
    > when it's earned, but no tax on the interest/dividends later
    > generated by the account), does this mean that a Canadian
    > resident who has a US Roth IRA should be declaring any
    > earnings from these accounts each year to the CCRA?
    > Stephen Gallagher
 
Old Jul 1st 2003, 5:44 am
  #10  
Kurakot
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Posts: n/a
Default Re: A Canadian Citizen with money in US 401k

if it's not reportable income in USA - it's reportable income
in CANADA



by the way - I read your article on NATIONAL POST about
immigration to canada....excellent piece


k







"Stephen C. Gallagher" wrote in
message news:[email protected]...
    > Since Canada does not have the equivalent of a US Roth IRA
    > (a retirement account where you pay tax on the contribution
    > when it's earned, but no tax on the interest/dividends later
    > generated by the account), does this mean that a Canadian
    > resident who has a US Roth IRA should be declaring any
    > earnings from these accounts each year to the CCRA?
    > Stephen Gallagher
 
Old Jul 1st 2003, 6:43 am
  #11  
Stephen C. Gallagher
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Posts: n/a
Default Re: A Canadian Citizen with money in US 401k

    > if it's not reportable income in USA - it's reportable income
    > in CANADA

I thought so. The whole point (and supposed benefit) of a Roth IRA
is that you pay tax on the amount you contribute, and whatever
the Roth IRA generates is supposed to be tax-free. Of course,
while Canadian tax laws will defer the earnings of a regular IRA
which are taxable when they are withdrawn, it appears that they
view a Roth IRA just like any other foreign held income generating
account.

    > by the way - I read your article on NATIONAL POST about
    > immigration to canada....excellent piece

Must have been written by a different Stephen Gallagher.
Was it an article or an letter to the editor (not that I remember
writing one of those either). Do you have a copy?

Stephen
 
Old Jul 4th 2003, 4:59 pm
  #12  
Bryan Kellar
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Posts: n/a
Default Re: A Canadian Citizen with money in US 401k

Hi there!

The CCRA recognizes US regular IRA and 401(k) contributions as retirement
trusts under the US/Canada tax treaty. Thus, the CCRA will not tax the
income in the account until the funds are withdrawn by the taxpayer.

The Roth IRA is not recognized in this way. So while the earnings of the
account are ignored by the IRS, CCRA counts the earnings as income in the
year they are earned. Further, since the US tax on these amounts is zero,
there will be no credit for foreign taxes paid on the CCRA return.

Bryan
--
----------------------------------------
Bryan Kellar, EA
Pioneer Tax & Accounting Service Portland, Oregon
www.oregontaxhelp.com

"Stephen C. Gallagher" wrote in
message news:[email protected]...
    > Since Canada does not have the equivalent of a US Roth IRA
    > (a retirement account where you pay tax on the contribution
    > when it's earned, but no tax on the interest/dividends later
    > generated by the account), does this mean that a Canadian
    > resident who has a US Roth IRA should be declaring any
    > earnings from these accounts each year to the CCRA?
    > Stephen Gallagher
 
Old Jul 7th 2003, 12:05 am
  #13  
Agn
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Posts: n/a
Default Re: A Canadian Citizen with money in US 401k

"Nick B." wrote in message news:...
    > To the best of my knowledge, you do not have to report earnings in a Roth
    > IRA to CCRA... All my financial planning texts recommend Americans resident
    > in Canada contribute to Roths since the Americans do not recognize RRSP's.
    >
For Cdn residents CCRA does indeed require year-by-year reporting of
income from a Roth, since these are specifically UNrecognized by the
treaty. US taxpayers contemplating moving/returning to Canada are in
fact NOT encouraged to invest in Roths, particularly if they have
other, tax-deductible, retirement plan options (IRA, 401(k)).

The yearly paying of Cdn tax (with no US tax available for foreign tax
credit), removes any potential tax advantages Roths have over other
retirement accounts which are recognized by treaty.

Returning Cdns and Americans contemplating a move to Canada are
encouraged, rather, to invest in tax-managed funds/stocks (ie. those
making few periodic distributions) and building up unaccrued capital
gains, which if left untouched until after departure from US, will not
be subject to US tax (by treaty) nor to Cdn tax (by virtue of the
deemed aquisition rules for new Cdn residents).

This method has all the good features of a Roth (ie. tax-free
withdrawal of 'contributions' and growth) without the future reporting
hassles (nor the early-withdrawl penalty) of a Roth. And this method
is not limited to a pawtry $3000 aa year ceiling.

    > I'll check for sure and get back to you.
    >
    > "Stephen C. Gallagher" wrote in
    > message news:[email protected]...
    > > Since Canada does not have the equivalent of a US Roth IRA
    > > (a retirement account where you pay tax on the contribution
    > > when it's earned, but no tax on the interest/dividends later
    > > generated by the account), does this mean that a Canadian
    > > resident who has a US Roth IRA should be declaring any
    > > earnings from these accounts each year to the CCRA?
    > >
    > > Stephen Gallagher
    > >
    > >
 
Old Jul 7th 2003, 12:16 am
  #14  
Agn
Guest
 
Posts: n/a
Default Re: A Canadian Citizen with money in US 401k

"Nick B." wrote in message news:...
    > To the best of my knowledge, you do not have to report earnings in a Roth
    > IRA to CCRA... All my financial planning texts recommend Americans resident
    > in Canada contribute to Roths since the Americans do not recognize RRSP's.
    >
    > I'll check for sure and get back to you.

Yeah, check those sources (in fact, chuck those sources -- they're
wrong).

RRSP ARE recognized by treaty, as maintaining tax deferral status,
and, once distributions are taken, only the growth is taxable by IRS ,
not growth and principal, so in that sense are "better" than IRA, and
don't carry the extra taxable reporting in Canada that Roths do.

Since the major goal of Americans living in Canada, either temporarily
or permanently is to reduce Cdn taxes immediately, There is NO WAY
that investing in a Roth is preferred over RRSP contributions.


    >
    > "Stephen C. Gallagher" wrote in
    > message news:[email protected]...
    > > Since Canada does not have the equivalent of a US Roth IRA
    > > (a retirement account where you pay tax on the contribution
    > > when it's earned, but no tax on the interest/dividends later
    > > generated by the account), does this mean that a Canadian
    > > resident who has a US Roth IRA should be declaring any
    > > earnings from these accounts each year to the CCRA?
    > >
    > > Stephen Gallagher
    > >
    > >
 
Old Jul 7th 2003, 12:21 am
  #15  
Agn
Guest
 
Posts: n/a
Default Re: A Canadian Citizen with money in US 401k

[email protected] (Vladimir Menkov) wrote in message news:...
    > In article ,
    > Nick B. wrote:
    > >You can leave it in the United States without any problem. As a US citizen
    > >you'd be wise to continue investing in a Roth IRA as well after your arrival
    > >in Canada as the IRS, for ludicrous technical reasons, does not recoginize
    > >tax deferral in an RRSP.
    >
    > (1) Not quite; the US-Canada tax treaty provides for the IRS
    > recognizing the income deferral in a RRSP, as long as the RRSP was
    > created from contributions made *while a resident of Canada*; which
    > means, that, strictly speaking, a RRSP funded by a rollover from an
    > IRA will not be recognized by the IRS.

Just to clarify. Since the release of Rev. Proc. 2002-23 (the
governing document for IRS treatment of RRSPs, superceding Rev. Proc.
89-45), IRS no longer disatinguishes between contributions made while
resident in Canad or not, ALL RRSP contributions are treated equally
at present, and all RRSP funds are eligible for continued tax
deferral.

Of course, other than in the year of departure from or return to
Canad, it makes little tax sense to contribute to an RRSP while a
resident of US, however, it is now accepted by IRS.
    >
    > (2) By the same treaty, CCRA will recognize deferral in a *regular*
    > IRA account, but not in a 401(k) or a Roth IRA; so the migrating
    > taxpayer may find it desirable to roll over the funds from his 401(k)
    > plan to an IRA; it is better to do it while still a resident of the
    > USA.
    >
    > (3) Domestic Canadian law allows for a tax-free rollover from an IRA
    > to an RRSP. However, if the taxpayer remains a US citizen, this may
    > not be a suitable course of action due to (1). Moreover, holding a
    > stateside IRA allows one to own US mutual funds in a tax-efficient
    > way, not available to him otherwise.
    >
    > See any good Canadian tax guide for details; there are such books in any
    > Canadian library.
    >
    > --vld.
 

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