403b plan liquidation

vancouverrph · Post by **vancouverrph** » Thu Aug 27, 2015 8:49 pm

I used to work in the U.S. many years ago and still have multiple 403b retirement investment plans there. I am thinking of liquidating all of them to consolidate and have all my investments in Canada, but would like to know what the tax implications of this are. W
Thank you ould I have to pay US tax at the time of liquidating each 403b plan? What about Canadian tax?

nelsona · Post by **nelsona** » Thu Aug 27, 2015 9:04 pm

The plans are taxable in US 20% plus 10% penalty (withheld at source) . They are also taxable in Canada, with Canada giving credit for the US tax.

vancouverrph · Post by **vancouverrph** » Sat Sep 12, 2015 11:00 pm

Thank you nelsona! :D

vancouverrph · Post by **vancouverrph** » Sun Nov 01, 2015 6:12 pm

Regarding transferring funds from a 401(K) plan in US to Canada: Information I received from the CIBC bank states the Canadian tax on this income can be offset if the funds, as a lump-sum, are contributed to an individual's RRSP within 60 days after the end of the year (ie. the normal RRSP deadline), and reported as a transfer on Schedule 7 of the personal income tax return for the year of transfer.
Would you agree with this? Do I have to transfer the funds from my US 401(K) plans into my Canadian RRSP account in order to avoid having to pay the Canadian tax?
Thank you for any help provided

nelsona · Post by **nelsona** » Thu Nov 05, 2015 7:31 am

The entire 401k amount, includindvthe withheld us tax is taxable in Canada,you must correctly transfer the entire amount, including the withheld amount, to get full deduction in Canada,

for this to be bebeficial, you must ALSO have sufficient other CDn income to be able to use the us tax as a credit.
otherwise, you are fundingyour rrsp with money that is being taxed twice: once by us going in, and once by Canada when you withdraw

vancouverrph · Post by **vancouverrph** » Tue Nov 10, 2015 10:34 pm

Regarding Aug 27th post: How exactly does Canada give credit for the U.S. tax? Would it be best to transfer the 403b plans funds as a lump sum into my Canadian RRSP ? This would exceed my yearly RRSP limit......

vancouverrph · Post by **vancouverrph** » Tue Nov 10, 2015 10:34 pm

Regarding Aug 27th post: How exactly does Canada give credit for the U.S. tax? Would it be best to transfer the 403b plans funds as a lump sum into my Canadian RRSP ? This would exceed my yearly RRSP limit......

nelsona · Post by **nelsona** » Wed Nov 11, 2015 10:56 am

I already answered your question, but just to put more concrete.
Say you have a $100K 404 plan. You would collapse the 403, and have $30K withheld as US tax. You cannot transfer directly, and avoids the 30K tax.

In Canada, you would add that $100K to your income, all taxable in Canada.
Unless you put $100K in your RRSP, the result is the difference is taxable in Canada.

So assume you have the $70K from the 4013, and you come up with the other $30K, and put this all in the RRSP. So no extra tax in canad on this transfer. However you have paid $30K to IRS.
Canada allows you to use the US tax as a credit against any Cdn tax that aroses from your Cdn income. So you would need roughly 80-90K of CDn income in the same year to be able to fully use this US tax, and result in a "tax-free" transfer of 403 to RRSP.

Obviously the task gets harder the bigger your 403 is -- and easier if it is smaller than this.

So to recap: for any 403/401/IRA transfer to RRSP,
you need ALL of the following:

You need to collapse the entire account in one shot
you need to have other funds on hand to make up what was withheld by US
you need to put all the 403 money plus the extra withholding in your RRSP
you need to have almost the same amount of other Cdn income as you are transferring, to get full credit for the US tax.

If you cannot meet ALL of these conditions, it makes no sense to transfer, and you should simply leave the 403 until retirement.

nelsona · Post by **nelsona** » Wed Nov 11, 2015 11:01 am

The transfer doesn't count against your yearly limit, it is a separate transaction.

vancouverrph · Post by **vancouverrph** » Sun Nov 15, 2015 12:24 am

Thank you very much for all of your help!
Just one more question....
I have 403b plans with 3 different companies (from 3 previous employers in the US): Fidelity, Voya and Great West Life.
Am I correct in assuming that I could collapse/liquidate just 1 of the 3 403b accounts (example: just the Fidelity account) but I have to transfer all of the money in the account?

nelsona · Post by **nelsona** » Sun Nov 15, 2015 11:23 am

Yes, you could do them one at a time. You simply can't take partial amounts from any one plan for this scheme.

vancouverrph · Post by **vancouverrph** » Sun Nov 15, 2015 9:02 pm

Your advice is very very appreciated. Thank you.