Subject: Moving back to Canada and 401K's - ask an income tax expert on international non resident and cross border tax and immigration issues
> Hi
> I saw a couple of your postings on the web and I am
> hoping you can help me. My husband and I are Canadians
> currently living in California. We are planning to
> move back to Canada this fall. We have decided to
> cash out our 401K's while living in Califirnia. From
> my understanding I will pay a 20% penalty up front and
> I will have to pay Califronia State taxes on my next
> return. Will we have to pay taxes on this money when
> we file in Canada?
>
> Also, my husband will be keeping his US job and work
> out of our home in Canada. Will we have to pay taxes
> in both Canada and the US? Can he contribute to RRSP's
> in Canada while working for a US Company?
>
> Thanks for your help
> Simone Hanham
===========================================
david ingram replies:
Whjen you move back to Canada and telecommute, you will only be taxable in Canada on any eanings. Your husband's employer should cease any California, US federal or US Social security taxes as you cross over the border. They should also STOP anyt deductions to a 401(K) or (B) plan.
If you are paid on a 1099 or 1042S, you will be self employed in Canada and be responsible for both halves of the CPP and your own tax to Canada and whichever province you move to.
Your employer should add "their" half of any extra payments to Social Security and Medicare and the 401(k) PLAN THAT THEY WERE MAKING TO YOUR GROSS INCOME.
The employer "could" also set up a Canadian payroll acount for you or pay you from an existing Canadian payroll account if they have one. However it is likely easier and cheaper and just as beneficial to you to set up as a self-employed person. He might be able to income split with you when he does so.
If you cash in your 401(K) you will be paying a 10% penalty plus your regular tax. I do not, as a rule, recommend this. Think three times "before" doing so. You should likely roll it over into an IRA however.
hope this helps
-------------- next part --------------
An HTML attachment was scrubbed...
URL: http://www.centa.com/CEN-TAPEDE/centapede/attachments/20050118/905b72b5/attachment.htm
What's Related