How to Withdraw a IRA and 401K for Returning Canadians

Allan Madan, CA
 Oct 29, 2014

Are a returning Canadian with an IRA and 401K? The tax man could be around the corner. Learn the best ways for withdrawing your IRA and 401K.

Your Options:
1) Keep your IRA and 401K as is. The advantage of this is your investments can continue to grow within these tax-deferred retirement accounts completely tax-free. The disadvantage is that withdrawals from your 401K and IRA would be subject to a 20% withholding tax in the US if you are 59 and a half years old (or older), or 30% if you are younger. Plus the cash withdrawals received would be taxable to you in Canada. However, you can claim a foreign tax credit on your Canadian tax return for the withholding taxes paid to the IRS.

2) Cash out. If you cash out the entire amount of your 401K and IRA upon leaving the US, you will be subject to tax at your US marginal tax rate on the whole amount. This is definitely a bad idea!

3) Transfer your IRA and 401K to your Canadian RRSP. IRAs can be rolled over on a tax-free basis to Canadian RRSPs. While there is a withholding tax imposed by the IRS on the transfer, the withholding tax can be recovered by claiming a foreign tax credit on your Canadian personal tax return. You cannot directly rollover a 401K to an RRSP. To get around this, you should convert your 401K into an IRA, and then make a tax free transfer of the IRA to an RRSP. Withholding taxes, which can be recovered, still apply.

Here’s the Tip:
Slowly withdraw funds from your IRA and 401K after you move to Canada. Furthermore, consider a tax free transfer to your RRSP.

If you left Canada you may have become a non-resident for tax purposes, if so then you might want to have a look at this article on becoming a non-resident of Canada.


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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  1. Good evening,
    I am a Canadian citizen living in the US since Nov 2005 and i just obtained US permanent residency. I did not file a tax return when i left Canada in 2005 and I believe I owe the CRA money from previous years. My spouse and children are also in the US and I have not maintained any resedential ties with Canada. I have a pension with a non locked in component that i have the option of cashing out from HOOPP. I am aware that i will ge taxed 25% off the top but will the CRA withhold the rest? I am also aware that if I choose that option then I will have to file a Canadian tax return next year. What are the implications to this?. The amount after the initial withholding tax should be around 70,000. I would have to return to Canada to open a bank account and Im afraid the CRA will wipe it out.Please advise. Thank you.

    1. ?Hi Debra,

      After reading your email below, the first concern I have is that you did not inform the CRA about your departure from Canada. As such, the CRA may have you incorrectly recorded you as a resident of Canada all of this time, when you were not. If my suspicion is correct, then we will need to submit form NR73, Determination of Residency, for you and also file a departure tax return. Therefore, I suggest that you immediately call the CRA to see how they have recorded your tax status in their system – as a resident or non resident of Canada.

      You do not have to file a Canadian tax return for withdrawing RRSP money, if you are a non-resident of Canada. The tax treaty between the US and Canada reduces the withholding tax from 25% to 15% for non-residents who make RRSP withdrawals.

      Finally, you are not taxed in the US on the entire amount of the withdrawal. Your are only taxed on the portion of your RRSP withdrawals that are attributable to the unrealized gains since departure from Canada.

      Once you contact the CRA about your tax status, please follow up with me and then I can provide you with further direction, along with my fees.


      Allan Madan, CPA, CA

  2. Why withdraw slowly from IRA to RRSP rather than lump sum? Ex say one has 400,000 $(Can) in US IRA. Working in Canada, a salary 150,000 and dividends 200,000 per yr in Canadian dollars. Wouldn’t a lump sum be more efficient?


  3. good day. do you know the percentage of taxes the Canadian government would charge on a withdrawal from a 401. I understand the 30% from IRS but what could I expect at tax season that the Canadian Government will take?

    1. Hi Parry,
      The Canadian income tax rate applied to the amount withdrawn from your 401-K is your ‘marginal tax rate’. Your marginal tax rate depends on the income tax bracket that you fall under. Note that you can claim a foreign tax credit on your Canadian tax return for the 30% taxes deducted and remitted to the IRS from your 401K withdrawal.

  4. Hi Allen. Can you explain how to roll over IRA to Canadian RRSP?
    should a bank financial adviser do that or what?

    1. Hi Mahin,
      Below is a summary of the steps involved in transferring an IRA to a Canadian RRSP:
      1. Contact a financial adviser that is familiar with the transfer process. Not every adviser is knowledgeable in this regard.
      2. Inform your financial institution that manages your IRA that you would like to close it.
      3. If you are a non-resident alien of the US, a 30% withholding tax will be deducted from the amount withdrawn from the IRA. An additional 10% early withdrawal penalty will apply if you are younger than 59.5 years of age.
      4. Contact your Canadian financial adviser to make an RRSP contribution. The term “60(j) deduction” should be specified on the RRSP contribution slip you receive.
      5. Claim a foreign tax credit on your Canadian tax return for the 30% tax deducted and 10% early withdrawal penalty. Depending on how high your income is in the year, you may receive a full refund/credit of both amounts.

      I suggest that you consult with a professional accountant/adviser to perform an analysis for you so that you can determine whether or not you can fully recover the withholding tax and early withdrawal penalty. Otherwise, this strategy does not make sense.

  5. Hi Madan team,
    I will have US retirement accounts (Roth and Traditional IRAs) when I move back to Canada as my only affiliation with the US. For years when I am 100% in Canada and earning Canadian money, will I need to file US tax forms for these accounts? Will I need to file US tax forms for withdrawals (early/regular/SEPP) or do I only file with the CRA?

    1. Hi Marian,

      When you move back to Canada permanently, you will no longer have to file any tax forms with the IRS in respect of your IRAs or 401-K in subsequent years. This is assuming that you have no other connection with the US, as you indicated. However, when you begin to make withdrawals, your US financial institution will require a completed Form W8-BEN from you, and they will issue a tax-reporting slip to report the amount withdrawn and the taxes deducted. This will present your final obligation to the IRS.


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