401k Contribution

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bellemoj
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Joined: Tue Apr 23, 2019 12:54 pm

401k Contribution

Post by bellemoj »

Hello,

I live in Canada but I work in the states and was wondering how I fill out Form RC268 for my contributions to an employer sponsored 401k (I commute across the border everyday). I contribute a percentage of my income to the 401k and my employer matches up to 8% of my income if I contribute 10% or more. From what I understand, is I can deduct some of my 401k contributions much like a Canadian can deduct some of their RRSP contributions to reduce their taxable income.

On RC268 "Calculating your Deduction":
1) For line 1, would this be my total yearly contributions to both Roth 401k (post tax contributions) and Traditional 401k (pre tax - hence deductible contributions) ?

2) For line 2, would this just be my yearly Traditional 401k contributions (pre tax contributions) ?

On RC268 "Prescribed Amount":
1) In my circumstance described, is my plan just a "money purchase" plan? If so, would that mean that I just put my employer's contributions for the year in this section on line 2?

2) Does this mean that only your employer's contribution to a 401k is your "Pension Adjustment" for the year and thus, your contribution don't really affect the "Pension Adjustment"? (They do indirectly since the more you contribute, the more your employer would contribute). Am I thinking about this all correctly?


Sorry for the lengthy post but I would really appreciate any help on the above questions. Thank you so much in advance !!
PlatinumNeon
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Joined: Tue Apr 23, 2019 11:54 pm

Re: 401k Contribution

Post by PlatinumNeon »

I have a follow up question to that as well --

I have a defined contribution plan. The employer does not contribute.

However, in the employer's benefits statement (just an information portal for the employees, not a tax re portable amount), there's the amount which is paid to the plan and considered a defined benefit (but not paid to me) -- instead, it's a gov-regulated %-age of my salary amount paid to DRS. I don't get to see this benefit until I worked a minimum amount of service and until I declare retirement.

Do I report this amount on RC268? (I don't think this is considered a money purchase?) Is it considered a defined benefit from the CDN perspective?
nelsona
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Re: 401k Contribution

Post by nelsona »

Its a defined benefit plan, in which you are participating. This amount will be used to reduce your 2019 RRSP (or 401(K)) limit. So just be aware that you *probably* shouldn't be funding your 401k much more than your employer match amount. Put that money in your house or some other tax-free investment.

No one gets their defined benefit until its paid to them. But it is still a defined benefit plan each year.
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PlatinumNeon
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Re: 401k Contribution

Post by PlatinumNeon »

..uhm, the thing is that the employer is not matching and not contributing to my plan.
This runs completely outside my plan, it is between the State legislature and the DRS (dept of retirement services). This amount does not go towards my plan (401a).
nelsona
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Re: 401k Contribution

Post by nelsona »

But YOU are participating. Defined benefit plans don't need to have employer participation, if the contributions etc meet the defined benefit.
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nelsona
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Re: 401k Contribution

Post by nelsona »

You seem to have a lot of concerns about your specific situation, so it might be worth (might) consulting with a Cdn cross-border pro on this, have it decided once, and then just go on from there as they determine, but, to me, that plan is simply an employer-sponsored plan, with the state as the admin rather than themselves or a private firm.
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PlatinumNeon
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Re: 401k Contribution

Post by PlatinumNeon »

This doesn't show anywhere on any forms though - not reported on my W2 or anything that has to do with IRS.
nelsona
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Re: 401k Contribution

Post by nelsona »

Other than it does not show up in your gross wages?
Nowhere in box 12?
As I said, this may be specific enough that a pro should look at it.
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nelsona
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Re: 401k Contribution

Post by nelsona »

By the way, your employer ABSOLUTELY contributes to TRS, so it is indeed an employer sponsored plan.
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nelsona
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Re: 401k Contribution

Post by nelsona »

and I'm sure you have a notation if not in Box 12, in box 14 showing your contributions.

This is an employer-sponsored pension plan, pure and simple, run by WA because you are in essence a state (public) employee. I would not lump those contributions with your wages (like your other contributions should) for Cdn purposes, but it should be reported on your RC form.
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PlatinumNeon
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Re: 401k Contribution

Post by PlatinumNeon »

Box 14 shows my union dues and scholarship contributions
Box 12 has a DD designation - which is health coverage; DD designation is not taxable and shown for information only.
nelsona
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Re: 401k Contribution

Post by nelsona »

that would be a question for your employer, since they are designating those funds as non-taxable, they would have told IRS, perhaps in some other manner.
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bellemoj
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Re: 401k Contribution

Post by bellemoj »

Nelsona, , would you be able to answer my original questions please? I can give you more information if needed
nelsona
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Re: 401k Contribution

Post by nelsona »

No. I will let you figure this out.
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PeterWarker102
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Re: 401k Contribution

Post by PeterWarker102 »

Pension plans are very flexible: there are options in which the accumulated funds are invested at the employer's discretion; there are also options in which the employee takes an active part. You're better off going to https://www.thefinitygroup.com/financia ... physicians to know how to distribute your money. Banks even consider the type of retirement plan and the amount of money in it when granting a loan. Retirement account funds are tax-exempt. You need to know that, too, to withdraw large amounts of money from your account.
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