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The original question follows this:
David,
Thank you very much for the response.
Upon my move to Canada, I will be considered a permanent resident for tax
purposes. Anytime after that, if I withdraw from 401K, even if it is after
my retirement age, as a Canadian resident, I will be subject to the higher
personal income taxation rate in Canada (compared to U.S). . Although I will
get my tax credit (hopefully) in Canada for any US taxes I might pay, I
still think the higher tax rate will dilute the 10% penalty I might have to
pay if I withdrew it fully. Also, since I will be leaving US. (for Canada
to live as a permanent resident) in the month of April, 2004, if I withdraw
my 401K now, I will only be required to pay U.S taxes and that too on a tax
bracket for a lower income for the entire year. (since my earnings for this
year in U.S will only be until March).
My decision therefore, to withdraw now (although I will face a 10% penalty)
will still save me a higher tax rate that I will be subject to in Canada and
also will be against a tax bracket for lower income for the entire year. At
least that should dilute my 10% penalty effect.
Do you think I am making the right decision, given the above. Again, I
appreciate your time very much. Thank you very very much.
-bxxxxxxxxxx
=================================================
david ingram replies:
I can agree with you . And, if you take it out (up to $10,000) and use it to buy a house in Canada in 2004, you will avoid the 10% penalty.
ingram
>From: "David Ingram at home - bus at [email protected]"
><[email protected]>
>Reply-To: "David Ingram at home - bus at [email protected]"
><[email protected]>
>To: Bobby Chowdhury <[email protected]>
>Subject: 401(k) Question when coming to Canada as a Permanent resident -
>FROM ASK AN INTERNATIONAL INCOME TAX MUTUAL FUND AND REAL ESTATE AND
>IMMIGRATION EXPERT CONSULTANT
>Date: Tue, 02 Mar 2004 00:19:16 -0800
>
>
>----- Original Message -----
>From:xxxxxxxxx
>To: [email protected]
>Sent: Monday, March 01, 2004 12:56 AM
>Subject: Question on 401K
>
>
>I have worked in the U.S on the temporary worker H1-B visa category for the
>last 5 years. During this time I have contributed to my 401K, but now I am
>about to become a permanent resident of Canada after sponsorship through my
>wife who is a Canadian citizen. We have a one year old son who was born in
>the U.S and is a U.S citizen.
>
>I have three questions:
>
>1) Is there any risk with leaving my 401K contributions in the U.S, rolled
>over into an IRA ?
>
>2) Is it possible to avoid the 10% penalty for early withdrawal (before age
>65), on the basis that I will need it desperately for my downpayment as a
>first time home buyer ? (The house to be purchased, however, will be in
>Canada).
>
>3) Can I request my Social Security contributions over my working years in
>U.S to be entered into the CPP payments and what do I have to do in order
>to
>accomplish this ?
>
>
>Thanks
>-Bxxxxxxxxxxxxxx
>
>_________________________________________________________________
>david ingram replies:
>
>1. No or little risk - most financial advisors advise you to have foreign
>content. A US IRA should be every bit as safe as any Canadian RRSP.
>2. You can take out up to $10,000 to buy a house. There is no
>requirement to have the house in the USA.
>
>3. Not at this time. When retirement time comes, you can use some of
>your CPP to make up your Social Security shortfall. that does not happen
>until actual retirement under the US / Canada Social Security Totalization
>Agreement.
>
>You will do this when you hit an age old enough to collect and the rules
>will likely have changed by then,
>
>When you move to Canada, you should send us that first year return.
>
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