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Date: Monday November 10, 2003
Time: 01:35 PM -0800
QUESTION:
I am a Canadian citizen residing in Canada and working in the US (TN
Status)for a US based company. I have been working with the company for 5
years.
RETIREMENT PLANNING
Currently I contribute to to the 401k with an employer match. In addition, I
contribute to an RRSP to minimize taxes in Canada ( the foreign tax credit
as nice as it is - is never enough).
TAX PLANNING
Currently I complete a tax returns in both the US and Canada.
QUESTIONS:
1). When my employment ends in the US, what is the best solution for my
401k. Roll it over into an IRA and leave it in the US? Or should it be
redeemed and brought to Canada?
If left in the US until retirement, what are the tax implications of
withdrawing from a 401K and an RSP?
2). With regard to Social Security, I may not meet the criteria of 40
credits (10 years) to be eligible for US benefits. In the interim, my CPP
earnings are 0. Does the US and Canada have some type of agreement that
recognizes earnings in the other country so that social security benefits
are not lost?
I do not intend to move to the US. I did live there for a brief time (1
year), however when I found out that the TN status does not allow you to
apply for residency and that ties must be maintained with Canada, I
determined it was easier to move back.
Thanks in advance for your assistance.
LXXXXXXXXX
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david ingram replies:
I am happy to answer this because it applies to so many people.
1. I would roll the 401(k) over into an IRA and leave it in the USA. Although I expect that the Canadian dollare will go back to 90 cents, having a strong investment in one of the world's strongest economies is not likely to hurt you.
When you take it out as a pension, you will pay 15% tax to the US and then report the gross in Canada agian. Canada will give you credit for the US tax paid with the same foreign tax credit you are using now.
2. You may use the totalization part of the US / Canada Social Security Agreement to add CPP credits to you US social security to get a pension. Usually this works out to more money than taking the US credits to increase your CPP payments.
3. There is no necessity to maintain residencey ties to Canada with a TN visa. That was bad information.
You should get your company to get you an H1B visa and apply for your green card . You can even get something called a "commuter Green Card" where you live in Canada and commute to a border job in the US.
With your 401(k) you are paying a big tax penalty by living in Canda because Canada does not recognize it as a tax deduction now and will tax you a second time when you take it out. It is a completely unfair situation that Canada has left its citizens and residents in.
Sorry I took so long to answer this. I am 100 questions behind and am leaving for a few days now. Will be even further behind soon.
David Ingram's US/Canada Services
US / Canada / Mexico tax and working Visa Specialists
US / Canada Real Estate Specialists
4466 Prospect Road
North Vancouver, BC, CANADA, V7N 3L7
Res (604) 980-3578 Cell (604) 657-8451
(604) 980-0321
New email to [email protected]
www.centa.com www.david-ingram.com
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David Ingram of the CEN-TA REALTY Group
US / Canada / Mexico tax and working Visa Specialists
US / Canada Real Estate Specialists
(604) 980-0321 - Fax 913-9123 [email protected]
www.centa.com www.david-ingram.com
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