Canadian with 401(k) dollars. - Dan Walkow Fred Snyder david ingram expert US CANADA cross border non-resident income tax help a

Greetings from xxxxxxxx xxxxx, where it is NOT snowing yet.

I am re-sending this because in the light of the Canadian dollar dropping, it might be a better idea to take advantage of the difference in currencies and try to bring it north.

Essentially, I have a bunch of dollars in a 401(k) plan from working in the states for a few years.

Now that I am close to retirement, I see the options as convert to an RRSP (or IRA, then RRSP), taking an immediate IRS hit of 15%, or convert to an IRA, and pay myself from that, while parking my RRSPs for 5 or 6 years.


With the Canadian Dollar low again, it might be the time to convert some money.  I am one of the people who thinks that the US is still one of the world's great economies.  However, after seeing the movie, I.O.U.S.A. or

I wonder whether or not, they can pull it together.  There true deficit is more like $56,000,000,000.000 (trillion) than the $10 trillion stated when you add in unfunded social security, Medicare and other costs.

To do what you want, you must first roll the 401(K) into an IRA.

What happens next of course is that lump sums out of your IRA are taxable in the USA first and Canada second.  Canada will give you credit for the tax paid to the US on forms T2209 and T2036.Depending upon how much you remove to transfer, your US tax could be up to 33%..

And, if you are younger than 59 1/2, there is a non-refundable US 10% penalty for early withdrawal/

To achieve the 15% withholding rate, you must convert the IRA or the 401(K) into a pension or annuity at which point the US tax is 15% but you will still owe Canada the difference.  i.e. if you are in the 34% tax rate in Canada, you will pay 15% to the US and 19% to Canada.

It is possible to roll the IRA into a Canadian RRSP.  To do so, however, you need to be working with a fairly large income to be able to take advantage of the Foreign tax credits to make it work.


My husband and I moved back to Canada after working in the US on TN visas for the last 8 years. WE moved back in Feb 2007.  He left behind a 401k with 50K in it. I left behind a 401K with 5K and a simple IRA with 8K in it.  The company that was managing my Simple IRA has just sent me a letter stating that they no longer are able to manage it because they are not licensed to provide financial services in Canada. I am not sure what I should do.  Ideally we would like to keep our 401K there because we many end up moving back there one day. Can I roll the simple IRA into my 401K even though I am no longer a resident?

I appreciate any help you can offer. 

Is there a station that we can listen to your program here in Toronto?

david ingram replies:
You can listen to the Sunday evening Show on the Internet at Sunday from 6 to 7:00 PM Vancouver time which is 9 to 10 PM Toronto time.
Darrell Thompson at Blackmont Securities in Toronto is capable of looking after your US IRA but the amount of $8,000 is not enough to bother with.  You can NOT roll an IRA into a 401(K) but you can roll a 401(K) into an IRA..
Assuming that you have an earned income in Canada, I suggest that you cash it in, pay the US tax and penalty and roll it over into a Canadian RRSP OR just pay the tax and take the balance and pay down your Canadian mortgage.
These older questions might help

    I was on H1 in US for 6 years before moving to Canada as a permanent resident in April 2007. I have a 401k account from my old company whom I left a couple of months ago. I also have a Roth IRA and a brokerage account. I would like to close all these accounts and use these as a downpayment for my house. Trying to get to 20% downpayment to avoid CMHC fee. When should I withdraw(this year or next year) and what would be the best way to avoid/minimize any withholdings? I have a Canadian mailing address. Initially I was thinking of doing all this next year to avoid paying any taxes this year, but if the financial institutions are going to withhold taxes because I am a non-resident, it will make matters worse. Thanks

david ingram replies:

Withholding tax is not the problem.  The withholding tax is only that, a withholding tax.  The actual withdrawals will be taxable at the end of the year on your tax return and will usually have a further tax liability.

Taking the money out of your 401(K) before you are 59 1/2 for instance, generates an additional 10% penalty.  However, if you are taking it out to buy a house, up to $10,000 is penalty free.

Off the top of my head, I would say you are better off to roll the 401K into an IRA.  Then take the IRA out and roll some or all into a Canadian RRSP next year.

$20,000 can then be withdrawn under Canadian rules to buy a house.  It becomes taxable over 15 years or you can pay back one 1/15th a year over 15 years to avoid the tax but you are usually better off to pay down the mortgage and pay tax on the 1/15th.,

On next year's US income tax, the IRA would come out at the lowest US rate and although taxable in Canada would be a rollover deduction and then you would get a foreign tax credit on your Canadian return for the foreign tax paid to the US.  That would leave you with a 10% penalty on the excess over $10,000 US but no or very little of actual tax paid at this time.  You would, of course, have a tax to pay when you withdrew it from your Canadian RRSP in the future.

It may also be that you would just be better off paying the tax and using the excess as a down payment.  If having $5,000 more cash (at a tax bill of $3,000) saves you $5,000 in CMHC fees, it is worth it.

Sit down and do a spread sheet.

This older question may help as well.

I have recently moved back to Canada from the US and I have a couple
questions about rolling a 401(k) into an RRSP (I know in general
this is not the best financial practice, but it looks like this
would be the best way for me to get access to the funds to use as
a down payment on a property).

1.  I know it's possible to roll and IRA into an RRSP.  Is it
    possible to do so with a 401(k).  From everybody I have talked to
    so far I am getting mixed signals as to whether this is possible,
    or I have to roll the 401(k) into an IRA first.

2.  What documentation, if any, do I need to show that I am rolling
    the 401(k), or the IRA, into an RRSP, so that it simply does
    not look like a contribution.

david ingram replies:

I am including a prior reply as an answer.


Dear Sir,

I have been working in California for the 5 years on H1 visa  and have 401 plan(about 40K)
What should I do with this plan , when I will move to Canada ( I'm a PR.)
Move it to IRA or other option .
Thank you very much


david ingram replies:


In the US since 2001 and there is a 50-50 chance I will move back to Canada in 2007 or beginning of 2008. What should I do with the following:

1.401K : I have a 50K+. Should I let it grow? Rollover in a IRA? should I withdraw when I know for sure that I will move back? (I heard you can rollover an IRA or 401K into a RRSP) what are the tax implications?

2. In the event I move to Canada, can I use my 401k or IRA toward the
purchase of my first home and not be taxed on my withdrawal.(I currently rent in the US and never bought a property in Canada) Will the US recognize a property bought in Canada as eligible for the first time home buyer program?

3. We wanted to contribute to a Coverdell education saving account this year for our first child. Will Canada tax me upon distribution?

4. Is there a best time to move back to Canada, (late 2007 or beginning of 2008)

Thank you for your time
david ingram replies:

Your 401(K) can be rolled to an IRA.  Your IRA can then be rolled into an RRSP but the US will not recognize it as a rollover and want to penalize you 10% for early withdrawal if you have not yet reached the exalted age of 59 1/2 at the time of withdrawal.

By buying a house, you can exempt up to $10,000 of the withdrawal from the 10% penalty.

Rolling it into the RRSP involves reporting the IRA as income on your
Canadian return and then claiming the deduction for the rollover. Because the tax paid to the is a foreign tax credit in Canada, you get to claim the tax paid to the USA against other income in Canada.

Therefore, it is necessary to have significant other income in Canada for you to get the equivalent of a tax free rollover.  In other words, do NOT move to Canada at the end of a year.  You should move at the start of a year, i.e. Jan 15 to May 15 or so that you can get a lower tax rate on your IRA withdrawal in the USA and maximum benefit for the foreign tax credit in Canada.

The alternate if you do move at the end of a year is to wait until the next year to do the rollover.  

Done properly, and with the RRSP money in the account long enough in Canada,you can then withdraw up to $20,000 Canadian (tax deferred) to use as a down payment on your Canadian house.

the following previous email talks about it as well.


worked in CA for 4 yrs. returned to BC in Apr.'04.  Need to transfer my retirement fund but having difficulties with bank and credit union.  US specifies that I must roll it over to IRA accounts (Individual retirement account.  I do not want to be subject to the 20% withholding fee for IRS.

What would be the best way to get the funds to me here in Canada.
david ingram replies:

1.  move it to an IRA and leave it there in one of the world's strongest economies.  Most financial advisors are trying to get "more" of their clients' money into US funds.

2.    If you just have to have it in Canada, you have to cash it in in the US and pay your tax to the US.  take what is left, add the amount (even if borrowed) of the tax you paid to the US and buy your Canadian RRSP.  That will give you a tax deduction which should be larger than the tax you paid to the US.

When you get the refund, pay back the loan.  You will have transferred the money quite handily.

The amount you took out is also taxable on your Canadian return.  Pay that tax with the tax you paid to the US as a foreign tax credit.

You will likely need help.

Don Walkow of Seabank Capital Management in Surrey, BC is one Canadian who can help you with the process while you are still in the United States.  His licensing allows him to deal with 401(K) plans, IRA's, RRSP's and straight securities in any state in the US - He is one of two people I know of who can do this. - His North American telephone number is 1-800-541-9952 and you can find out more at As of about November 15, 2008, Dan Walkow and I will be doing a regular Internet Phone in show dealing with these matters at

Darrell Thompson of Blackmont Securities is the other person and is located in Toronto.  His phone number is 866-775-7704

If you are in Canada and in BC in particular, Fred Snyder, host of "Its Your Money" every Sunday Evening from 6:00 to 7:00 PM Vancouver Time can also look after you but can NOT talk to you if you are in the US. (999 out of 1,000 other Representatives in Canada can NOT talk to you either).  You can listen to this Canadian Program (I am a guest on the fourth Sunday of every month) live at
Answers to this and other similar  questions can be obtained free on Air every Sunday evening.
Every Sunday at 6:00 PM on 980AM in Vancouver, Fred Snyder of Dundee Wealth Management and I will be hosting an INFOMERCIAL but LIVE talk show called "ITS YOUR MONEY"

Those outside of the Lower Mainland will be able to listen on the Internet at

Local phone calls to (604) 280-9898 - 

Old shows are archived at the site.
You can find my suggested price list at


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