Personal Finance

401k to IRA/RRSP as Canadian resident

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  • Dec 11th, 2019 12:46 am
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[OP]
Deal Addict
Jun 19, 2007
1021 posts
1162 upvotes
Halifax

401k to IRA/RRSP as Canadian resident

I used to work in the US and have roughly 20k US in a 401k tied to my old employer, from whom I was laid off from a couple months ago.

I was instructed that I could not keep it there as its tied to the company, and need to withdraw it. My options being a tax free rollover to an IRA, or straight withdraw to cash which would incur a 10+15% tax penalty. I opened an account with TD Bank North as I thought it would make things a little easier.

I also read I can move it to an RRSP, pay the 25% penalty, but then can use part(all?) as a foreign tax credit. Everything I read online said it must be moved to a IRA first, but the person I was talking to on the phone with TD Cross border services said I can go straight from 401K to RRSP.

They also suggested getting professional tax advice. Has anyone been in a similar situation before? How did you handle it? What sort of tax person would I even use?

Thanks for any help.
4 replies
Sr. Member
Dec 22, 2013
930 posts
223 upvotes
EDMONTON
I would just roll it over to an IRA. Leave it grow until retirement. No tax consequences until retirement.

You're correct that you'd get a foreign tax credit on the early withdrawal taxes, but you'd also have to take that amount into income in Canada which would more or less use up the credit. So you'd still be losing the withholding tax, not to mention there may be an early withdrawal penalty.
[OP]
Deal Addict
Jun 19, 2007
1021 posts
1162 upvotes
Halifax
Yes, that's what I was hoping to do, but according to TD Bank North, I need to physically go to the US to open an IRA? Is this correct? Despite doing lots of cross border stuff, most of the people I'm catching on the phone don't seem to know much about it, nor seem like they've even come across it before.

One person I talked to said I can go straight from 401k to RRSP, which I think is a 10% hit which is better than 25%, but still something I'd like to avoid if I can. Also it conflicts with everything I've read online which says it needs to go to an IRA first.
Deal Addict
Jan 24, 2015
1021 posts
310 upvotes
Canadian in USA
If TD won't do it, use a different firm. You can transfer your 401k an IRA at a different institution. Call around and find one that will work with you
Deal Addict
Apr 23, 2008
1476 posts
368 upvotes
seadog83 wrote: I used to work in the US and have roughly 20k US in a 401k tied to my old employer, from whom I was laid off from a couple months ago.

I was instructed that I could not keep it there as its tied to the company, and need to withdraw it. My options being a tax free rollover to an IRA, or straight withdraw to cash which would incur a 10+15% tax penalty. I opened an account with TD Bank North as I thought it would make things a little easier.

I also read I can move it to an RRSP, pay the 25% penalty, but then can use part(all?) as a foreign tax credit. Everything I read online said it must be moved to a IRA first, but the person I was talking to on the phone with TD Cross border services said I can go straight from 401K to RRSP.

They also suggested getting professional tax advice. Has anyone been in a similar situation before? How did you handle it? What sort of tax person would I even use?

Thanks for any help.
I am in the similar situation looking for advice and info. I am facing 30% tax withholding for withdrawing and closing the IRA account with US CIti bank. I am trying to claim a lower tax rate 15% under CAN and US tax treaty but they kept rejecting my W-8BEN form as incomplete. Do you mind telling me how you did yours?

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