Subject: 401K and HSA Expert: taxman at centa.com Date: Sunday November 05, 2006 Time: 01:39 PM -0500 QUESTION: I am a Canadian citizen currently work in the USA. I have 401K and Health Savings Account. If I were to move back to Canada in twenty years, how would my 401K and HSA be treated? Would I have to repatriate them and what would the tax implications be? ------------------------------------------ david ingram replies: When you start to take a monthly retirement pension from your 401(K), the payments will be taxed 15% in the US and then the full payment will be added to your line 115 figure in Canada, Your US Social Security will also be added to line 115 in full. No Tax will be paid to the US on your US social Security if you are resident in Canada. Under article XVIII(5), of the US / Canada Income Tax Convention 15% of the amount of Social Security can be deducted on your Canadian return on line 256 which means that you will pay Canada on 85% of your Social security. The 15% you paid to the US on your regular 401(K) pension is deducted dollar for dollar from your Canadian Tax by filling in lines 431 and 433 of your Canadian return. I do not know what will happen with the HSA (Health Savings Account). So far, no one has come through my office returning to Canada with an HSA. Passed in 2003, the HSA is not a pension and does not seem to fall within the US Canada Income Tax Convention which was last amended in 1997. I expect that you will owe the US straight tax on the amount withdrawn and Canada will tax it again and give you credit for the tax on lines 431 and 433. Depending upon how much you withdraw, there could be no tax on the US side and a confusion in Canada because it is my opinion that the principal put into the plan is not taxable in Canada because it is not a pension and only interest earned on the account should be taxable after your return to Canada. Please note that you are talking 20 years from now. 11 years ago, only 50% of the US social Security was taxed in Canada and it was taxed in the US first for most people and you claimed a foreign tax credit in Canada. In the last 20 years, the line numbers on the Canadian return have changed twice. My answer is pure conjecture based upon today's rules. ------------------------------------- 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 - (604) 980-0321 Fax (604) 980-0325 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 <http://www.david-ingram.com/> Disclaimer: This question has been answered without detailed information or consultation and is to be regarded only as general comment. Nothing in this message is or should be construed as advice in any particular circumstances. 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