Canadian with 401(k) dollars. - Dan Walkow Fred Snyder david ingram expert US CANADA cross border non-resident income tax help a

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 downpayment 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/minimize any withholdings? 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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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!

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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
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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.

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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.
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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. As of about November 15, 2008, Dan Walkow and I will be doing a regular Internet Phone in show dealing with these matters at www.david-ingram.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 Evening from 6:00 to 7:00 PM 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.cknw.com

Every Sunday at 6:00 PM on 980AM 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.cknw.com

Local phone calls to (604) 280-9898 - 

Old shows are archived at the site.