i'm currently in the US working under TN. my plan is to leave after my 3 years is up and return back to canada. i bought 'the border guide' and one of the things it mentions is that i should collapse my RRSP. i also read that the 401k is a pain the collapse because of the 10% penalty, in addition to being taxed as income...
so the question becomes...is it even worth it to do if i'm only planning to be in the states for 3 years?
collapsing RRSP sorta makes sense...because the 25% withholding fee is much lower than my current tax bracket, and i avoid having to report RRSP income to the IRS.
as for the 401k i see far more disadvantages than advantages. i can save a little in taxes, but my money is essentially stuck in the US until i retire because all the other options are financially unfavorable.
is there something i'm missing? thanks.
RRSP, 401k, how long to make it worthwhile?
Moderator: Mark T Serbinski CA CPA
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hyperbling
- Posts: 24
- Joined: Thu Jan 27, 2011 6:02 pm
You are not wrong about either.
However, depending on how far you are from retirement, you might simpluy hold on to your RRSP while in US, if you really intend to return to canada. There will be no tax in US if you do not take any money out, and if you take themoney at retirement, it might very well be taxed lower than 25%. But it would not be 'wrong' to take the money as a US resident shortly after leaving Canada.
If your company offers a Roth401(K) you could look at that. Roths will be considered tax-free in canada and US forever. You can immediately take out what you put in tax/penalty free. I would agree that simply saving marginal US tax with a 401(k) only to later have it taxed at higher rate in Canada (and/or face the early disrtibution penalty) is probably not a great idea for short-term in US.
You would probably be better off with straight investments, which, if you do not cash before leaving US, would essentially grow tax-free while you are in US.
However, depending on how far you are from retirement, you might simpluy hold on to your RRSP while in US, if you really intend to return to canada. There will be no tax in US if you do not take any money out, and if you take themoney at retirement, it might very well be taxed lower than 25%. But it would not be 'wrong' to take the money as a US resident shortly after leaving Canada.
If your company offers a Roth401(K) you could look at that. Roths will be considered tax-free in canada and US forever. You can immediately take out what you put in tax/penalty free. I would agree that simply saving marginal US tax with a 401(k) only to later have it taxed at higher rate in Canada (and/or face the early disrtibution penalty) is probably not a great idea for short-term in US.
You would probably be better off with straight investments, which, if you do not cash before leaving US, would essentially grow tax-free while you are in US.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing 
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hyperbling
- Posts: 24
- Joined: Thu Jan 27, 2011 6:02 pm
US will only tax gains while you are resident, so selling after you are no longer a US resident filer avoids US tax.
For canada, when you return, your cost basis is from the day you return.
So, you buy a stock now for $10, it is $20 when you leave, and you sell it later for $22, you are only taxed in canada on $2 gain, and no tax in US.
For canada, when you return, your cost basis is from the day you return.
So, you buy a stock now for $10, it is $20 when you leave, and you sell it later for $22, you are only taxed in canada on $2 gain, and no tax in US.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing