My mom died recently, so me and my brother are looking into how to handle my dad's 401(k) plan now that we are the sole beneficiarys.
My dad is 82, worked in the US (but lived in Canada) most of his working life. Retired for about 20 years, still living in Canada, has taken out the minimum required from his 401(k) plan since 70 years old.
Both me and my brother have SSN numbers (this was required of us for some reason way back around 30 years ago but I don't remember why, and we've never ever filed a US tax return or have used those SSN numbers in any way for anything).
Should my dad try to roll over the 401k into a Canadian RRSP/RSP (and pay what- 15% withholding to the US gov't but get a credit for that on the Canadian side) ?
Should he roll the 401k over into a conventional IRA?
Should he just sign what-ever forms there are to name both me and my brother as beneficiary on his 401(k) and then just deal with the situation how-ever we need to when he dies (if there is still money in the 401k at the time) ?
Right now I think he has $200k US in the 401k.
My dad (with 401k) is Canadian (so am I) what to do?
Moderator: Mark T Serbinski CA CPA
There is no reason to bring this 401(k) to Canada as the tax would be MUCH greater than 15% in the end.
Since he has been taking withdrawals without issue, he should simply continue to do so. He might want to take more out if he wishes every year.
He could transfer it to an IRA, if he feels the IRA would have different investments than he currently has, and would give him a better return.
By leaving it in US, when he dies, the IRA will transfer to his beneficiaries with no tax as an inherited IRA. Then you will be have to take required withdrawals from it and pay tax.
If he would transfer to an RRSP, he would first off pay likely 30% US tax, and would only be able to get full credit in canafa if he had $150K of other income to write off the tax. Also, once he died, the RRSP would be disoolved immediately and his estate would owe Cdn tax on the whole remainder, and you would get the remaining cash.
So, it might just be better to perhaps 40-50K of the money over the 4 or 5 years, and pay tax now.
Sometimes, 401(k) established years ago have some portion that is not taxable in Canada (since it was included in his income back then). Does he have an idea if this is so, or has he simply been reporting the whole amount on his Cdn tax return?
Since he has been taking withdrawals without issue, he should simply continue to do so. He might want to take more out if he wishes every year.
He could transfer it to an IRA, if he feels the IRA would have different investments than he currently has, and would give him a better return.
By leaving it in US, when he dies, the IRA will transfer to his beneficiaries with no tax as an inherited IRA. Then you will be have to take required withdrawals from it and pay tax.
If he would transfer to an RRSP, he would first off pay likely 30% US tax, and would only be able to get full credit in canafa if he had $150K of other income to write off the tax. Also, once he died, the RRSP would be disoolved immediately and his estate would owe Cdn tax on the whole remainder, and you would get the remaining cash.
So, it might just be better to perhaps 40-50K of the money over the 4 or 5 years, and pay tax now.
Sometimes, 401(k) established years ago have some portion that is not taxable in Canada (since it was included in his income back then). Does he have an idea if this is so, or has he simply been reporting the whole amount on his Cdn tax return?
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