Practically timing 401(k) to Roth conversion

[raspberries]

Hello,

I'm a Canadian who has been working in the United States for several years and have accumulated traditional and Roth savings in my 401(k).

Lately, I have contributed as much as possible to the Roth 401(k), both via regular contributions, and via after-tax/mega-backdoor contributions. However, some funds are pre-tax, including the employer match (which as I understand, is always assigned to the pre-tax bucket), and my personal contributions from before my employer offered the Roth 401(k) option.

I'd like to prepare to return to Canada, and am curious how to go about practically converting pre-tax funds into Roth so I can enjoy tax-free withdrawals in retirement. As I understand it, I can only do this conversion once I have terminated my employment with my current employer in the United States.

My questions are:

- Would I need to schedule some time off, before returning to Canada, but after quitting in the United States, during which I would request the conversion of my match and traditional funds to Roth? How long would this have to be to ensure the rollover completes before I become a Canadian resident?

- If I were to return to Canada by transferring offices with my current employer, is there a standard way to negotiate this sort of window, where I can be "terminated" as far as the US retirement plan administrator is concerned, but still employed with the multinational?

- If I'm not able to convert the funds in time, is there anything better to do than just leave the pre-tax funds in the 401(k) plan?

- My employer allows Roth 401(k) funds to be moved to an external Roth IRA at any time. Is there any benefit to doing this? My reading of Technical News #43 is that it is not a taxable event to do this after returning to Canada.

Thanks.

[nelsona]

You would need to accomplish this before becoming Cdn resident. The transfer takes days, so there is no real timing issue. Moving Roth funds between accounts does not create a Cdn contribution, and preserves the Roth.

You will of course be paying US tax on the conversion.
Any other questions related to when/how you can do this would be asked of your 401(k) manager.

[raspberries]

Many thanks for the quick response.

The crux of my issue is mainly about what documentation the CRA would be looking for to establish the date at which I return to Canadian residency. If, for example, the conversion does not settle until a few days after I've crossed the border, would that cause a problem? Or suppose my final paycheck results in an additional contribution to the Roth account a few weeks after I've quit. Should I plan a buffer week or two before traveling to Canada to minimize this risk, or is there some accepted grace period that allows transactions to wrap up and settle without counting as a Canadian contribution?

[nelsona]

Well, you should change your election at work so that you stop contributing to the Roth portion, as this indeed would be a Cdn contribution. You want to avoid that.

I would be planning to stay in US for a month or so.

Your Cdn residency date is simple: either when you cross the border (formally importing your stuff), or when you get your place to live in Canada, whichever occurs last.