401K contributions by Canadian Taxpayer - international non-resident cross border income tax help assistance expert preparation

Sent: Saturday, January 27, 2007 7:50 AM
To: taxman at centa.com
Subject: RE:401K contributions
To David Ingram:
Here is a case, please advice:
Canadian citizen with house in Canada,kid in Canadian school,wife
with kid working in Canada.
Everybody is green card holder. Husband full time employed in
U.S. with residence in U.S. goes to Canada every month. Same with
family goes to U.S. on Kid;s holiday.HUsband is considered as
resident of Canada for income tax purposes but resides mostly in
Question: Is the 401K contributions from U.S. income of husband
taxable in Canadian income tax? This is just like RRSP in Canada
which is deferred taxation  . Taxable upon withdrawal. Will
Canada consider  401K that as RRSP since no income has been
received ?
Upon retirement, how can one  detect the taxed pension   (401K)
paid by the retired U.S. employee ( if 401K is taxable in Canada)
versus the 401K non taxable contribution of the employer ?
Thank you for your time,
david ingram replies:
The 401(K) is NOT a deduction in Canada.  In my opinion, no one
paying Canadian tax should have a 401(K).  If the employer is
contributing to the plan that is okay, but you should not be.
Make a deal that your contribution to a Canadian RRSP will
fulfill any contractual obligations you might have to participate
in the company retirement plan.
This older answer will help I think.
taxman at centa.com: Please see bottom of message if you wish to
My_question_is: Applicable to both US and Canada
Subject:        Canada USA taxation - 401k or RRSP?
Expert:         taxman at centa.com
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
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
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
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 www.centa.com (left hand top
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
$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
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
David Ingram's US / Canada Services
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Disclaimer:  This question has been answered without detailed
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