I am a Canadian resident and have some funds in a U.S. 401K. What is the most tax efficient way of bringing these monies into Canada?

Allan Madan, CA
 Oct 30, 2013
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The most tax efficient method is to transfer these funds to your RRSP. Unfortunately, you cannot directly transfer your 401K to your RRSP.

This transfer can be completed as follows:

  1. Open a Rollover Individual Retirement Account (IRA) account with an investment firm capable of cross border investment management.
  2. Rollover the 401k to an IRA.
  3. Withdraw all of the IRA as a Canadian resident (you will be assessed 15% withholding tax). If you are under 59.5 years, there will be an additional 10% penalty.
  4. The net resulting lump sum payment is then transferred to your RRSP in Canadian dollars. The deposit into the RRSP must occur in the year of withdrawal or within 60 days of year-end.
  5. The full gross withdrawal including the withholding tax is included as Canadian income with an offsetting RRSP deduction. This results in no additional tax liability to Canada.
  6. The 15% withholding tax paid to the IRS may be claimed as a foreign tax credit (FTC) for Canadian tax purposes.

Please note that you will incur Canadian tax when you eventually withdraw funds from your RRSP.

Disclaimer

The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.

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