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 QUESTION: Hello, 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? Thanks, HS ------------------------------------------------ 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 http://www.fin.gc.ca/treaties/USA_e.html -------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 - (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. No contract exists between the reader and the author and any and all non-contractual duties are expressly denied. All readers should obtain formal advice from a competent and appropriately qualified legal practitioner or tax specialist for expert help, assistance, preparation, or consultation in connection with personal or business affairs such as at www.centa.com <http://www.centa.com> . If you forward this message, this disclaimer must be included." Be ALERT, the world needs more "lerts" David Ingram gives expert income tax & immigration help to non-resident Americans & Canadians from New York to California to Saudi Arabia to Mexico to China or Chile - Cross border, dual citizen - out of country investments are all handled with competence & authority or referred to those who can handle special situations.
