US 401K Tax credit in Canada -

My_question_is: Applicable to both US and Canada
Subject:        US 401K Tax credit in Canada
Expert:         taxman at
Date:           Wednesday December 20, 2006
Time:           04:05 PM -0500
Dear consultant,
I am a Canadian resident and work in US with H1B visa. I want to know if I
can tax deduct the 401K investment I purchased in US company in my Canadian
tax return? If so, which column item I need to put it in T1 tax return form?
Thanks a lot for your help.
david ingram replies:
I have pneumonia and am not supposed to be working period.  Therefore, I am
just sending a copy of an old answer that should help.
No one in your position should have a 401(K).
My_question_is: Applicable to both US and Canada
Subject:        Canada USA taxation - 401k or RRSP?
Expert:         taxman at
Date:           Wednesday September 27, 2006
Time:           09:22 PM -0400
Hi, I am a Canadian citizen living in Canada and working for a US company. I
usually work from my home office and travel to the US for about 4 days per
month. I  am on a H1 B visa. US federal taxes are deducted directly from my
check. I understand that when I file my taxes in both Canada and the US I
use the foreign tax credit so I am not double taxed. Given my situation,
should I contribute to my US 401k or should I focus on contributing to an
RRSP? It seems that if I contribute to a 401k I end up paying the tax
savings back to Canada in the Foreign Tax Calculation. Thanks.
david ingram replies:
a 401(K) is of no benefit because you are paying Canadian Tax.  If there is
a company co-pay, you should get the company to pay it to you on the
condition you buy an RRSP.
If they will just give you the money, in my opinion, you are usually better
off paying down your mortgage.
And do not fall for the "do both" logic.  The only reason that seems to work
is that you are putting more money out of your pocket.
Read the Nov 2001 newsletter at (left hand top box).
Let me put it this way.  In ordinary terms, if you were in a 33 1/3% tax
bracket, for you to put $1,000 into an RRSP, you would only need to earn
$666.67 to put the $1,000 in.
The reason is that I could loan you $333.33.  You could add the $333.33 to
$666.67 you have earned, put $1,000 into an RRSP and when you get the
$333.33 back, you give it to me.  In other words, to put $1,000 into an RRSP
you only needed to earn $666.67.
However, if you take $1,000 you had and buy the RRSP, you will get the
$333.33 back.  If you put the $333.33 towards your mortgage, you have put
"after tax" dollars into the mortgage.
To have that $333.33 back, it really meant that you had to earn $500,00 and
pay $166.67 of tax to have $333.33 left over.
The reason that it looks good is that you had to come up with twice as much
money. In other words, you had to earn $1,500 and pay $500 tax to put the
$1,000 into the RRSP to get the $333.33 back to pay down your mortgage.
i.e. the $333.33 represents $500 in before tax dollars.
I say that in the long run, you are better off earning the $1,500, paying
the $500 Tax and putting the whole $1,000 against the mortgage.
I know it is hard to get your mind around but do the calculations.
David Ingram's US / Canada Services
US / Canada / Mexico tax, Immigration and working Visa Specialists
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