401(K) -= only read if you have one and want to get it

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MessageThis is an interesting exchange of emails.
Canadians with 401(k) accounts will be interested
From: David Ingram at home - bus at taxman@centa.com 
To: Nelson, Andrew G. 
Sent: Thursday, May 20, 2004 1:02 AM
Subject: Re: Gary Gauvin solution ??? l estate immigation, IRA RRSP 401(K) and income tax experts expert - David Ingram 's CENTA in West Va
I agree with you.  It can be done but truly makes no sense to me to do it.
It is the same as an RRSP drawdown  in Canada.
Why take the money out of the stronger economy nad put it into a weaker economy when all the financial consultants lament the fact that RRSP's limit foreign content to 30%.
It also works better at the highest tax bracket.  I have to agree though that for someone wanting to buy an RRSP for purposes of the Home Buyer;s program, it makes more sense.
I am going to pass the whole thing along as we have written it.
----- Original Message ----- 
From: Nelson, Andrew G. 
To: David Ingram at home - bus at taxman@centa.com 
Sent: Wednesday, May 19, 2004 10:04 PM
Subject: RE: Gary Gauvin solution ??? l estate immigation, IRA RRSP 401(K) and income tax experts expert - David Ingram 's CENTA in West Va
I thought this was the crux of his letter from CRA, posted at his website:
http://www.garygauvin.com/WebDocs/CCRA/RevCan_IRA.pdf
See if my interpretation of it makes sense.
Cdn resident having $50K in Cdn-source taxable income. (All figures will be Cdn)
Has a 401(K)/IRA from previous work while resident in US. This makes any withdrawal fully taxable in Canada.
Withdraws $30K, paying say $10K in tax and penalties to IRS.
According to the letter, the $30K is considered income in Canada, but is ALSO eligible for deposit to RRSP.
So, his total taxable income becomes $80K, but if he rolls the $30 into an RRSP he gets a $30K deduction.
When figuring his foreign tax credit, the $30K is ALL considered as foreign source, so the foreign part of FTC remains $30K regardless of the fact that it was later deducted. This is what the CRA letter clearly states as allowable.
This makes the $10K paid in US an eligible tax, and will effectively lower his Cdn tax bill by that $10K.
In other words, the tax paid in US will be used to fund the Cdn tax on his Cdn income.
For this to work, the taxpayer MUST have Cdn income, and must have a Cdn tax bill that at least matches the US tax he pays on his 401(K)/IRA withdrawal.
I thought, that that was pretty clear from the letter, otherwise, the letter has no real value, since it is obvious from several other CRA sources that IRA moneys are always eligible for RRSP rollover.
The problem has always been trying to get credit for the US tax paid. This letter would seem to allow it EVEN WHEN ROLLED OVER.
AGN
  -----Original Message-----
  From: David Ingram at home - bus at taxman@centa.com [mailto:davidingram@shaw.ca] 
  Sent: Wednesday, May 19, 2004 10:43
  To: Nelson, Andrew G.
  Cc: TAXMAN
  Subject: Gary Gauvin solution ??? l estate immigation, IRA RRSP 401(K) and income tax experts expert - David Ingram 's CENTA in West Va
  Gray is not sure what ou are referring to.   
  Gary worked for me from 1982 to 1988 and then was a partenr in my Ottawa office until 1996 or 1997.
  Know him well.
  david
  ----- Original Message ----- 
  From: Gary Gauvin 
  To: 'David Ingram at home - bus at taxman@centa.com' 
  Sent: Wednesday, May 19, 2004 8:05 AM
  Subject: RE: Texas couple want to use 401k and Employer RetirementPlans to Fund down payment in Maple Ridge - TD Waterhouse - ask International real estate immigation, IRA RRSP 401(K) and income tax experts expert - David Ingram 's CENTA in West Va
  David;
  I have no idea what reference he is using. Must be confusing me with another source.
  Doesn't seem that I would say you could get a Canadian foreign tax credit for US tax paid on something that wasn't taxed in Canada. That just won't happen.
  I agree with your initial response. I also would like to see details of the plan Andrew refers to.
  Gary
  Gary P Gauvin LLC
  Tax Services
  2500 Rochelle Rd
  Rockwall TX 75032
  Phone & Fax (469) 273-3399
  tax@garygauvin.com
  This message (including any attachments) contains confidential information intended for a specific individual and purpose, and is protected by law. If you are not the intended recipient, you should delete this message. Any disclosure, copying, or distribution of this message, or the taking of any action based on it, is strictly prohibited. 
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  From: David Ingram at home - bus at taxman@centa.com [mailto:davidingram@shaw.ca] 
  Sent: Wednesday, May 19, 2004 2:40 AM
  To: tax@garygauvin.com
  Subject: Texas couple want to use 401k and Employer RetirementPlans to Fund down payment in Maple Ridge - TD Waterhouse - ask International real estate immigation, IRA RRSP 401(K) and income tax experts expert - David Ingram 's CENTA in West Va
  Gary - is this something I have missed or are you taking the money out, paying the US tax, claiming the tax credit and then using the amount taken out for a Canadian RRSP and getting a Canadian Tax deduction (which you could re-invest). 
  Please send me a copy of whatever Andrew is referring to.
  david
  -----Original Message-----
  From: Nelson, Andrew G. [mailto:agnelson@cal.ameren.com]
  Sent: Monday, May 17, 2004 9:43 PM
  To: taxman@centa.com
  Subject: RE:  Texas couple want to use 401k and Employer RetirementPlans to Fund down payment in Maple Ridge - TD Waterhouse - ask International real estate immigation, IRA RRSP 401(K) and income tax experts expert - David Ingram 's CENTA in West Va
  Gary gauvin has clearly outlined a simple way where one can methodically move 401(k)/IRA money to Cdn RRSPs, incurring no Cdn tax  AND having  the US tax on withdrawal used as a credit on Cdn tax on Cdn income..
  Have you looked into this at all?
    -----Original Message-----
    From: centapede-bounces@basalt.belcarra.com [mailto:centapede-bounces@basalt.belcarra.com] On Behalf Of centapede-admin@basalt.belcarra.com
    Sent: Monday, May 17, 2004 10:52
    To: CENTAPEDE
    Subject:  Texas couple want to use 401k and Employer RetirementPlans to Fund down payment in Maple Ridge - TD Waterhouse - ask International real estate immigation, IRA RRSP 401(K) and income tax experts expert - David Ingram 's CENTA in West Vancou
    Just moved up from Texas to Maple Ridge with my wife.  I've got $11k US in 401ks
    and she has $39k US in an employee retirement account that will allow her to
    roll it over into a different retirement plan without penalty.  We have 1
    income now and want to but a house   or townhome in the $250-$300k range and
    need help getting into position to do that.  The financial advisor @ TD was
    of little help, not knowing anything about the tax ramifications and not
    offering any solutions to help us meet out goals other than getting a TD
    Visa to start having a credit record.
    ==============================
    david ingram replies:
    Although Canada will allow the 401(K) and IRA accounts to be rolled over to a Canadian RRSP, the US institutions usually refuse to do so.
    To get it into a Canadian Institution, you could roll the US accounts into the US side of TD Waterhouse.
    You can certainly try.  Otherwise, you can remove up to $10,000 from your 401(K) and she can remove up to $10,000 to buy a house.  You will still owe US and Canadian  tax on the amounts but you will not owe the US 10% penalty for early withdrawal.
    If the institutions will allow you to roll the plans over, you can then take out up to $20,000 each with out paying tax to either country to buy a house in Canada if you have not owned a home anywhere in the last five years.  If either of you owned a home in Arizona, you cannot withdraw tax free from the RRSP either.
    You should likely buy a $350.00 hour of my time and lay your stuff on the table.
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