Most retirees who have a 401(k), end up rolling over the 401(K) to an IRA soon after leaving their employer. This usually gives them a wider range of investments, and sometimes lower fees.
However there a re a couple of reasons to leave your retirement funds as a 401(k), at least til age 60 if not longer.
1. 401(K) withdrawals are not subject to 10% penalty if withdrawn between 55 and 59.5, once you have left the employer. If you rollover the 401(k) to an IRA, the account loses this benefit. So, at least until 59.5, you might want to hold off on transfer.
2. from a cross-border point of view: For those thinking of retiring back to Canada, be aware that IRA income is not "eligible income" neither for pension splitting purposes, nor the $2000 pension income credit. 401(k) income IS eligible. This would be particularly important for couples where only one spouse was building pension income in US. Converting to an IRA would make that income fully taxable in the pensioners hands in Canada, and the benefit of splitting pension into the lower earning spouse would be lost.
Thinking of transferring 401(k) to IRA at retirement?
Moderator: Mark T Serbinski CA CPA
Thinking of transferring 401(k) to IRA at retirement?
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing 
Grr! Exactly my scenario but too late for me. Mind, perhaps I would have moved it anyway. I wanted to get my retirement savings into a vehicle I could manage cross-border. So there's that. The single biggest part of our retirement savings is my US IRA (formerly 401(K)). Although it's not the only thing. We do have Canadian RRSPs and my spouse has a couple of small pensions, one US, one Canadian.
Spouse is turning 65 this year. I now have to figure out how to deal with taxation of CPP, OAS, Social Security (via totalization), Can pension, US pension. Joy. Hoping this is accurate: https://serbinski.com/re-sourcing-pensi ... ent-canada
Spouse is turning 65 this year. I now have to figure out how to deal with taxation of CPP, OAS, Social Security (via totalization), Can pension, US pension. Joy. Hoping this is accurate: https://serbinski.com/re-sourcing-pensi ... ent-canada
Not quite accurate.
The last line reads: "... the amount of tax paid in Canada which exceeds the 15% foreign tax credit allowed in Canada is allowed to be claimed on form 1116 accompanying a U.S. income tax return..."
It should read " the amount of --- US tax determined on ones 1040 --- which exceeds the 15% foreign tax credit allowed in Canada is allowed to be claimed on form 1116 accompanying a U.S. income tax return
What Canada taxes your US pension is up to Canada and is not reduced by anything more than 15%. It is the US that will reduce its tax to 15% if need be.
For your 1040 effective rate to exceed 15%, under the new tax rates, you need to report US$140,000 of gross income on your 1040, so not likely to happen (or else good for you!).
What will be more important (or challenging) will be how WEP affects your SS. You will need to fill a form with SS, telling them your foreign pensions and CPP.
You shouldn't need the toatlization agreement, as long as one of you worked 40 quarters. It is not need for the Cdn benefits.
CPP, OAS and SS are easy. Not taxed in US (report an deduct on 1040). all taxed in Canada (less 15% of SS).
may I ask what firm your 401(K) was held at that would not allow you to manage from Canada?
The last line reads: "... the amount of tax paid in Canada which exceeds the 15% foreign tax credit allowed in Canada is allowed to be claimed on form 1116 accompanying a U.S. income tax return..."
It should read " the amount of --- US tax determined on ones 1040 --- which exceeds the 15% foreign tax credit allowed in Canada is allowed to be claimed on form 1116 accompanying a U.S. income tax return
What Canada taxes your US pension is up to Canada and is not reduced by anything more than 15%. It is the US that will reduce its tax to 15% if need be.
For your 1040 effective rate to exceed 15%, under the new tax rates, you need to report US$140,000 of gross income on your 1040, so not likely to happen (or else good for you!).
What will be more important (or challenging) will be how WEP affects your SS. You will need to fill a form with SS, telling them your foreign pensions and CPP.
You shouldn't need the toatlization agreement, as long as one of you worked 40 quarters. It is not need for the Cdn benefits.
CPP, OAS and SS are easy. Not taxed in US (report an deduct on 1040). all taxed in Canada (less 15% of SS).
may I ask what firm your 401(K) was held at that would not allow you to manage from Canada?
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
Thanks much for the information. In answer to your questions:
1. 401(K) was with T. Rowe Price and I assumed I couldn't manage it from Canada, by analogy with other investments (we had Roth IRAs with Vanguard and those could be kept but withdrawals were the only allowed transaction). I'm detecting from your comment that perhaps there's an exception for 401(K)s.
My historic retirement savings managing strategy was mostly neglect (not neglect of contributing, but neglect of managing the investments). I am now trying something different: have a cross-border licensed advisor at Raymond James managing all our RRSPs and IRAs. We'll see how that goes.
2. I have more than 40 quarters in US and will get a decent amount from SS. However I am younger than spouse and expect to work for another 3 years or so. He has 37 quarters but with totalization will get a modest amount from SS which I understand won't be subject to WEP because he's using totalization. So we figured he may as well start collecting that ASAP (in fact, he really should have applied sooner). Then when I retire and start collecting SS we'll switch him to the spousal amount based on my SS, which will be quite a bit more than he gets from his own contributions.
If any of this is invalid, I'm most anxious to be corrected!
Also, any advice on how to pick pension options. Have choice of 100% or 60% survivor pension, with the original pension being accordingly smaller or larger.
1. 401(K) was with T. Rowe Price and I assumed I couldn't manage it from Canada, by analogy with other investments (we had Roth IRAs with Vanguard and those could be kept but withdrawals were the only allowed transaction). I'm detecting from your comment that perhaps there's an exception for 401(K)s.
My historic retirement savings managing strategy was mostly neglect (not neglect of contributing, but neglect of managing the investments). I am now trying something different: have a cross-border licensed advisor at Raymond James managing all our RRSPs and IRAs. We'll see how that goes.
2. I have more than 40 quarters in US and will get a decent amount from SS. However I am younger than spouse and expect to work for another 3 years or so. He has 37 quarters but with totalization will get a modest amount from SS which I understand won't be subject to WEP because he's using totalization. So we figured he may as well start collecting that ASAP (in fact, he really should have applied sooner). Then when I retire and start collecting SS we'll switch him to the spousal amount based on my SS, which will be quite a bit more than he gets from his own contributions.
If any of this is invalid, I'm most anxious to be corrected!
Also, any advice on how to pick pension options. Have choice of 100% or 60% survivor pension, with the original pension being accordingly smaller or larger.
I believe that YOU can collect spousal benefits as soon as he begins his. This will not impact your future "personal" benefits, which you can take whenever you want as well. Since you are no longer working In US, it will not be clawed back due to your working. Free money.
If you check, 60% option probably doesn't give you much less than 100.
If you check, 60% option probably doesn't give you much less than 100.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing