401K

[3YrsLeftOnPR]

Hi!

I moved to Canada after my H1B renewal was denied in 2018 but kept the account as-is, but see no point keeping the account in USA. Can someone share your experience with 401K account and funds especially please reply for below queries.

Q1) Anyone who moved out of USA, what did you do with your 401K funds?
Q2) I need to tap funds from this account & any information about how to withdraw the money with minimal penalty?
Q3) Is there an option to move the account to Canada? And is it advisable to move it to Canada?

Any pertaining information is highly appreciated!

Thank you!

 

[wink]

Hi!

I moved to Canada after my H1B renewal was denied in 2018 but kept the account as-is, but see no point keeping the account in USA. Can someone share your experience with 401K account and funds especially please reply for below queries.

Q1) Anyone who moved out of USA, what did you do with your 401K funds?
Q2) I need to tap funds from this account & any information about how to withdraw the money with minimal penalty?
Q3) Is there an option to move the account to Canada? And is it advisable to move it to Canada?

Any pertaining information is highly appreciated!

Thank you!

Yes, you can move the 401k(US) to RRSP (Canada), provided you have contribution room. My wife moved her 401k to RRSP here two years ago. But it's bit headache if you don't calculate correctly... We had to deal with CRA couple of more follow up filings to set everything right. I think you better take help of a CPA. Even with CPA's help it took three subsequent filings because miscalculations... I didn't move my 401k contributions... US stock market is doing good any way, so I think it is better to leave it there itself...

Some info is here
https://www.moneysense.ca/save/taxes/should-i-transfer-401k-into-canada/

 

[3YrsLeftOnPR]

Yes, you can move the 401k(US) to RRSP (Canada), provided you have contribution room. My wife moved her 401k to RRSP here two years ago. But it's bit headache if you don't calculate correctly... We had to deal with CRA couple of more follow up filings to set everything right. I think you better take help of a CPA. Even with CPA's help it took three subsequent filings because miscalculations... I didn't move my 401k contributions... US stock market is doing good any way, so I think it is better to leave it there itself...

Some info is here
https://www.moneysense.ca/save/taxes/should-i-transfer-401k-into-canada/

Thank you wink for your response! May I ask what was the overall cost percentage your wife has incurred transferring to RRSP? I too saw that the US Stock market is rallying but I need money for personal reasons and 401K is the only source of funds available for me. But if I am taking an early withdrawal the entire penalty is 40% and thus I was thinking if I can transfer to RRSP in Canada and take a withdrawal here as it might not be 40% loss (as taxed in USA). What are your thoughts?

 

[wink]

Thank you wink for your response! May I ask what was the overall cost percentage your wife has incurred transferring to RRSP? I too saw that the US Stock market is rallying but I need money for personal reasons and 401K is the only source of funds available for me. But if I am taking an early withdrawal the entire penalty is 40% and thus I was thinking if I can transfer to RRSP in Canada and take a withdrawal here as it might not be 40% loss (as taxed in USA). What are your thoughts?

We did not lose anything (in term of tax) in this process. IRS withheld 5%, but we were able get credit for that while filing tax here. In our case we did not do early withdrawal, just transfer. So I am not sure about the tax implications for early withdrawal. In our case, we just miscalculated the contribution room and over-contributed, we supposed to exclude employer part of the contribution.

From the link I shared in the prev post, it looks like 15% is the maximum rate.

“The maximum tax rate applicable in the Canada-U.S. tax treaty is 15%,” says Angela, “and many view the 10% early withdrawal penalty to be a tax penalty that would be caught in the 15% maximum rate. This means that no matter what age you are, 15% is the maximum rate of tax you will pay on the collapse of a US pension, as long as you are living in Canada when it is collapsed.”

But I am not sure about that.

 

[3YrsLeftOnPR]

We did not lose anything (in term of tax) in this process. IRS withheld 5%, but we were able get credit for that while filing tax here. In our case we did not do early withdrawal, just transfer. So I am not sure about the tax implications for early withdrawal. In our case, we just miscalculated the contribution room and over-contributed, we supposed to exclude employer part of the contribution.

From the link I shared in the prev post, it looks like 15% is the maximum rate.

“The maximum tax rate applicable in the Canada-U.S. tax treaty is 15%,” says Angela, “and many view the 10% early withdrawal penalty to be a tax penalty that would be caught in the 15% maximum rate. This means that no matter what age you are, 15% is the maximum rate of tax you will pay on the collapse of a US pension, as long as you are living in Canada when it is collapsed.”

But I am not sure about that.

Thank you Wink, I shall consult a CPA before I move it to Canada. Your inputs were very helpful!