401k and IRA - tax on withdrawals

My_question_is: Applicable to both US and Canada
Subject:        401k  and IRA - tax on withdrawals
Expert:         taxman at centa.com
Date:           Tuesday August 08, 2006
Time:           01:50 PM -0700
I am a Canadian citizen working in the US on a TN visa.
I accumulated funds in an IRA with my previous US employer and am
accumulating funds in a 401K with my current employer.
I am currently 58 and shall return to Canada when I retire.
Once back in Canada, will I be liable for any US tax on
-  withdrawals from IRA or 401K
-  capital appreciation within IRA or 401K
and would I be liable for any Canadian tax on capital appreciation within
the IRA or 401K?
I assume that withdrawals would be subject to Canadian income tax.
If there are tax liabilities, then does the source of the funds affect the
liabilities - self, employer contribution, pension lump-sum?
Are there strategies I should be considering before returning to Canada
which would reduce any tax liabilities?
david ingram replies:
When you return to Canada, either arrange for the 401(K) to become a pension
or roll it over into an IRA and then into a pension or annuity.
Then, when you withdraw your monthly payments, the payer will deduct 15% and
remit it to the IRS under Article XVIII(2) of the US / Canada Income Tax
Convention (Treaty) which you can find at
-------When you receive the pensions in Canada, you will report the GROSS
income (before tax was deducted) (converted to Canadian Dollars) on lines
115 and 433 of the Canadian Income Tax Return.  Then you will convert the
15% tax paid to the US to Canadian dollars and report it on line 431
(Schedule 1) of the Canadian return and Canada will give you a dollar for
dollar deduction from the tax you owe Canada.
You will also be receiving US Social Security.  Again it is converted to
Canadian and goes on line 115 of the Canadian return.  Then you take 15% of
the amount you report and deduct it on line 256 of the Canadian return.
This is a deduction from "income" not from tax as the line 431 amount was.
You do NOT pay tax to the US on the US Social Security paid to you in Canada
because Article XVIII(5) of the US Canada Treaty states that you only pay
tax on Social Security to the Country you "Live In", not the country that
pays it.
Hope this helps and you know where to find us seven years from now when you
have to do those two country crossing the border tax returns.
-----------------David Ingram's US / Canada Services
US / Canada / Mexico tax, Immigration and working Visa Specialists
US / Canada Real Estate Specialists
My Home office is at:
4466 Prospect Road
North Vancouver,  BC, CANADA, V7N 3L7
Cell (604) 657-8451 -
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Calls welcomed from 10 AM to 10 PM 7 days a week  Vancouver (LA) time -
(please do not fax or phone outside of those hours as this is a home office)
email to taxman at centa.com <mailto:taxman at centa.com>
www.centa.com <http://www.centa.com/>  www.david-ingram.com
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