Rolling 401k to RRSP -
Canadian Citizen and have worked in the US for 5 years. Have a 401k in
US. Moving back to Canada. What can I do with the 401K. I know I can
leave as is, roll to another employer, roll to IRA, or cash out. But
can I roll to an RSP? Thanks.
---------------------------------------------
david ingram replies:
The answer is yes but I am up to my tail end in alligators. These older questions will give you the answer and show you that you are NOT alone.
QUESTION:
Hello,
I was on H1 in US for 6 years before moving to Canada as a permanent resident in April 2007. I have a 401k account from my old company whom I left a couple of months ago. I also have a Roth IRA and a brokerage account. I would like to close all these accounts and use these as a down payment for my house. Trying to get to 20% downpayment to avoid CMHC fee. When should I withdraw(this year or next year) and what would be the best way to avoid/minimise any witholdings? I have a canadian mailing address. Initially I was thinking of doing all this next year to avoid paying any taxes this year, but if the financial institutions are going to withhold taxes because I am a non-resident, it will make matters worse. Thanks
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david ingram replies:
Withholding tax is not the problem. The withholding tax is only that, a withholding tax. The actual withdrawals will be taxable at the end of the year on your tax return and will usually have a further tax liability.
Taking the money out of your 401(K) before you are 59 1/2 for instance, generates an additional 10% penalty. However, if you are taking it out to buy a house, up to $10,000 is penalty free.
Off the top of my head, I would say you are better off to roll the 401K into an IRA. Then take the IRA out and roll some or all into a Canadian RRSP next year.
$20,000 can then be withdrawn under Canadian rules to buy a house. It becomes taxable over 15 years or you can pay back one 1/15th a year over 15 years to avoid the tax but you are usually better off to pay down the mortgage and pay tax on the 1/15th.,
On next year's US income tax, the IRA would come out at the lowest US rate and although taxable in Canada would be a rollover deduction and then you would get a foreign tax credit on your Canadian return for the foreign tax paid to the US. That would leave you with a 10% penalty on the excess over $10,000 US but no or very little of actual tax paid at this time. You would, of course, have a tax to pay when you withdrew it from your Canadian RRSP in the future.
It may also be that you would just be better off paying the tax and using the excess as a down payment. If having $5,000 more cash (at a tax bill of $3,000) saves you $5,000 in CMHC fees, it is worth it.
Sit down and do a spread sheet.
This older question may help as well.
---------------------------------------------
david ingram replies:
The answer is yes but I am up to my tail end in alligators. These older questions will give you the answer and show you that you are NOT alone.
QUESTION:
Hello,
I was on H1 in US for 6 years before moving to Canada as a permanent resident in April 2007. I have a 401k account from my old company whom I left a couple of months ago. I also have a Roth IRA and a brokerage account. I would like to close all these accounts and use these as a down payment for my house. Trying to get to 20% downpayment to avoid CMHC fee. When should I withdraw(this year or next year) and what would be the best way to avoid/minimise any witholdings? I have a canadian mailing address. Initially I was thinking of doing all this next year to avoid paying any taxes this year, but if the financial institutions are going to withhold taxes because I am a non-resident, it will make matters worse. Thanks
----------------------------------------------------------------
david ingram replies:
Withholding tax is not the problem. The withholding tax is only that, a withholding tax. The actual withdrawals will be taxable at the end of the year on your tax return and will usually have a further tax liability.
Taking the money out of your 401(K) before you are 59 1/2 for instance, generates an additional 10% penalty. However, if you are taking it out to buy a house, up to $10,000 is penalty free.
Off the top of my head, I would say you are better off to roll the 401K into an IRA. Then take the IRA out and roll some or all into a Canadian RRSP next year.
$20,000 can then be withdrawn under Canadian rules to buy a house. It becomes taxable over 15 years or you can pay back one 1/15th a year over 15 years to avoid the tax but you are usually better off to pay down the mortgage and pay tax on the 1/15th.,
On next year's US income tax, the IRA would come out at the lowest US rate and although taxable in Canada would be a rollover deduction and then you would get a foreign tax credit on your Canadian return for the foreign tax paid to the US. That would leave you with a 10% penalty on the excess over $10,000 US but no or very little of actual tax paid at this time. You would, of course, have a tax to pay when you withdrew it from your Canadian RRSP in the future.
It may also be that you would just be better off paying the tax and using the excess as a down payment. If having $5,000 more cash (at a tax bill of $3,000) saves you $5,000 in CMHC fees, it is worth it.
Sit down and do a spread sheet.
This older question may help as well.
---------------------------------------------------------------
XXX wrote:
david ingram replies:
I am including a prior reply as an answer.
------------------------------------------------------------------------------------
Dear Sir,
Question
I have been working in California for the 5 years on H1 visa and have 401 plan(about 40K)
What should I do with this plan , when I will move to Canada ( I'm a PR.)
Move it to IRA or other option .
Thank you very much
_____________________________________________________________________________________
david ingram replies:
Hi,
I have recently moved back to Canada from the US and I have a couple
questions about rolling a 401(k) into an RRSP (I know in general
this is not the best financial practice, but it looks like this
would be the best way for me to get access to the funds to use as
a down payment on a property).
1. I know it's possible to roll and IRA into an RRSP. Is it
possible to do so with a 401(k). From everybody I have talked to
so far I am getting mixed signals as to whether this is possible,
or I have to roll the 401(k) into an IRA first.
2. What documentation, if any, do I need to show that I am rolling
the 401(k), or the IRA, into an RRSP, so that it simply does
not look like a contribution.
Thanks!
------------------------------------------------------------------------------------------------------------david ingram replies:
I am including a prior reply as an answer.
------------------------------------------------------------------------------------
Dear Sir,
Question
I have been working in California for the 5 years on H1 visa and have 401 plan(about 40K)
What should I do with this plan , when I will move to Canada ( I'm a PR.)
Move it to IRA or other option .
Thank you very much
_____________________________________________________________________________________
david ingram replies:
------------------------------------------ QUESTION: Hello, In the US since 2001 and there is a 50-50 chance I will move back to Canada in 2007 or beginning of 2008. What should I do with the following: 1.401K : I have a 50K+. Should I let it grow? Rollover in a IRA? should I withdraw when I know for sure that I will move back? (I heard you can rollover an IRA or 401K into a RRSP) what are the tax implications? 2. In the event I move to Canada, can I use my 401k or IRA toward the purchase of my first home and not be taxed on my withdrawal.(I currently rent in the US and never bought a property in Canada) Will the US recognize a property bought in Canada as eligible for the first time home buyer program? 3. We wanted to contribute to a Coverdell education saving account this year for our first child. Will Canada tax me upon distribution? 4. Is there a best time to move back to Canada, (late 2007 or beginning of 2008) Thank you for your time ---------------------------------------------------- david ingram replies: Your 401(K) can be rolled to an IRA. Your IRA can then be rolled into an RRSP but the US will not recognize it as a rollover and want to penalize you 10% for early withdrawal if you have not yet reached the exalted age of 59 1/2 at the time of withdrawal. By buying a house, you can exempt up to $10,000 of the withdrawal from the 10% penalty. Rolling it into the RRSP involves reporting the IRA as income on your Canadian return and then claiming the deduction for the rollover. Because the tax paid to the is a foreign tax credit in Canada, you get to claim the tax paid to the USA against other income in Canada. Therefore, it is necessary to have significant other income in Canada for you to get the equivalent of a tax free rollover. In other words, do NOT move to Canada at the end of a year. You should move at the start of a year, i.e. Jan 15 to May 15 or so that you can get a lower tax rate on your IRA withdrawal in the USA and maximum benefit for the foreign tax credit in Canada. The alternate if you do move at the end of a year is to wait until the next year to do the rollover. Done properly, and with the RRSP money in the account long enough in Canada, you can then withdraw up to $20,000 Canadian (tax deferred) to use as a down payment on your Canadian house. ------ the following previous email talks about it as well. QUESTION: worked in CA for 4 yrs. returned to BC in Apr.'04. Need to transfer my retirement fund but having difficulties with bank and credit union. US specifies that I must roll it over to IRA accounts (Individual retirement account. I do not want to be subject to the 20% withholding fee for IRS. What would be the best way to get the funds to me here in Canada. ====================================== david ingram replies: 1. move it to an IRA and leave it there in one of the world's strongest economies. Most financial advisors are trying to get "more" of their clients' money into US funds. 2. If you just have to have it in Canada, you have to cash it in in the US and pay your tax to the US. take what is left, add the amount (even if borrowed) of the tax you paid to the US and buy your Canadian RRSP. That will give you a tax deduction which should be larger than the tax you paid to the US. When you get the refund, pay back the loan. You will have transferred the money quite handily. The amount you took out is also taxable on your Canadian return. Pay that tax with the tax you paid to the US as a foreign tax credit. You will likely need help. Don Walkow of Seabank Capital Management in Surrey, BC is one Canadian who can help you with the process while you are still in the United States. His licensing allows him to deal with 401(K) plans, IRA's, RRSP's and straight securities in any state in the US - He is one of two people I know of who can do this. - His North American telephone number is 1-800-541-9952 and you can find out more at www.seabankcapital.com. Darrell Thompson of Blackmont Securities is the other person and is located in Toronto. His phone number is 866-775-7704 If you are in Canada and in BC in particular, Fred Snyder, host of "Its Your Money" every Sunday Morning from 9:00 to 10:30 AM Vancouver Time can also look after you but can NOT talk to you if you are in the US. (999 out of 1,000 other Representatives in Canada can NOT talk to you either). You can listen to this Canadian Program (I am a guest on the fourth Sunday of every month) live at www.600am.com. ---------------------------------- Answers to this and other similar questions can be obtained free on Air every Sunday morning. Every Sunday from 9:00 AM to 10:30AM on 600AM in Vancouver, Fred Snyder of Dundee Wealth Management and I will be hosting an INFOMERCIAL but LIVE talk show called "ITS YOUR MONEY" Those outside of the Lower Mainland will be able to listen on the Internet at www.600AM.com Local phone calls to (604) 280-0600 - Long distance calls to 1-866-778-0600. Old shows are archived at the site. ----------------------------------------------------------
On February 11, 2008, David
Ingram wrote:
It is very unlikely that blind or unexpected email to me will be answered. I receive anywhere from 100 to 700 unsolicited emails a day and usually answer anywhere from 2 to 20 if they are not from existing clients. Existing clients are advised to put their 'name and PAYING CUSTOMER' in the subject line and get answered first. I also refuse to be a slave to email and do not look at it every day and have never ever looked at it when I am out of town. e bankruptcy expert US Canada Canadian American Mexican Income Tax service and help
However, I regularly search for the words"PAYING
CUSTOMER" and always answer them first if they did not get spammed out.
For the last two weeks, I have just found out that my own email notes
to myself have been spammed out and as an example, as I wrote this on
Dec 25, 2007 since June 16th, my 'spammed out' box has
47,941 unread messages, my deleted box has 16645 I have actually looked
at and deleted and I have actually answered 1234 email questions for
clients and strangers without sending a bill. I have also put aside
847 messages that I am maybe going to try and answer because they look
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Calls welcomed from 10 AM to 9 PM 7 days a week Vancouver (LA) time - (please do not fax or phone outside of those hours as this is a home office) expert US Canada Canadian American Mexican Income Tax service help.
$1,700 would be for two people with income from two countries
Catch - up returns for the US where we use the Canadian return as a guide for seven years at a time will be from $150 to $600.00 per year depending upon numbers of bank accounts, RRSP's, existence of rental houses, self employment, etc. Note that these returns tend to be informational rather than taxable. In fact, if there are children involved, we usually get refunds of $1,000 per child per year for 3 years. We have done several catch-ups where the client has recieved as much as $6,000 back for an $1,800 bill and one recently with 6 children is resulting in over $12,000 refund.
David Ingram expert income tax service and immigration help and preparation of US Canada Mexico non-resident and cross border returns with rental dividend wages self-employed and royalty foreign tax credits family estate trust trusts income tax convention treaty advice on bankruptcy
It is very unlikely that blind or unexpected email to me will be answered. I receive anywhere from 100 to 700 unsolicited emails a day and usually answer anywhere from 2 to 20 if they are not from existing clients. Existing clients are advised to put their 'name and PAYING CUSTOMER' in the subject line and get answered first. I also refuse to be a slave to email and do not look at it every day and have never ever looked at it when I am out of town. e bankruptcy expert US Canada Canadian American Mexican Income Tax service and help
Therefore, if an email is not answered in 24 to
48 hours, it is likely lost in space.
You can try and resend it but if important AND YOU TRULY WANT OR NEED
AN ANSWER from 'me', you will have to phone to make an appointment.
Gillian Bryan generally accepts appointment requests for me between
10:30 AM and 4:00 PM Monday to Friday VANCOUVER (Seattle, Portland, Los
Angeles) time at (604) 980-0321. david ingram expert
US Canada Canadian American Mexican Income Tax service and help.
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My Home office is at:
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Calls welcomed from 10 AM to 9 PM 7 days a week Vancouver (LA) time - (please do not fax or phone outside of those hours as this is a home office) expert US Canada Canadian American Mexican Income Tax service help.
Disclaimer:
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in this message is or should be construed as advice in any particular
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David Ingram
gives expert income tax service & immigration help to non-resident
Americans & Canadians from New York to California to Mexico
family, estate, income trust trusts Cross border, dual citizen - out of
country investments are all handled with competence & authority.
Phone consultations
are $450 for 15 minutes to 50 minutes (professional hour). Please note
that GST is added if product remains in Canada or is to be returned to
Canada or a phone consultation is in Canada. ($472.50 with GST if in
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This is not intended to be definitive
but in general I am quoting $900 to $3,000 for a dual country tax
return.
$900 would be one T4 slip one W2 slip
one or two interest slips and you lived in one country only (but were
filing both countries) - no self employment or rentals or capital gains
- you did not move into or out of the country in this year.
$1,200 would be the same with one
rental
$1,300 would be the same with one
business no rental
$1,300 would be the minimum with a
move in or out of the country. These are complicated because of the
back and forth foreign tax credits. - The IRS says a foreign tax credit
takes 1 hour and 53 minutes.
$1,600 would be the minimum with a
rental or two in the country you do not live in or a rental and a
business and foreign tax credits no move in or out
$1,700 would be for two people with income from two countries
$3,000 would be all of the above and
you moved in and out of the country.
This is just a guideline for US /
Canadian returns
We will still prepare Canadian only
(lives in Canada, no US connection period) with two or three slips and
no capital gains, etc. for $200.00 up.
With a Rental for $400, two or three
rentals for $550 to $700 (i.e. $150 per rental) First year Rental -
plus $250.
A Business for $400 - Rental and
business likely $550 to $700
And an American only (lives in the US
with no Canadian income or filing period) with about the same things in
the same range with a little bit more if there is a state return.
Moving in or out of the country or
part year earnings in the US will ALWAYS be $900 and up.
TDF 90-22.1 forms are $50 for the
first and $25.00 each after that when part of a tax return.
8891 forms are generally $50.00 to
$100.00 each.
18 RRSPs would be $900.00 - (maybe
amalgamate a couple)
Capital gains *sales) are likely
$50.00 for the first and $20.00 each after that.
Catch - up returns for the US where we use the Canadian return as a guide for seven years at a time will be from $150 to $600.00 per year depending upon numbers of bank accounts, RRSP's, existence of rental houses, self employment, etc. Note that these returns tend to be informational rather than taxable. In fact, if there are children involved, we usually get refunds of $1,000 per child per year for 3 years. We have done several catch-ups where the client has recieved as much as $6,000 back for an $1,800 bill and one recently with 6 children is resulting in over $12,000 refund.
This is a
guideline not etched in stone. If you do
your own TDF-90 forms, it is to your advantage. However, if we put them
in the first year, the computer carries them forward beautifully.
This from "ask an income trusts tax service and
immigration expert" from www.centa.com or www.jurock.com or www.featureweb.com. David Ingram deals on a daily basis with expatriate tax
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