Roth 401(k) for USC, Canadian Resident?

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stewak2
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Roth 401(k) for USC, Canadian Resident?

Post by stewak2 » Mon Sep 25, 2006 3:34 pm

US citizen, Canadian resident, commuting to work daily in US.
Employer will begin offering Roth 401(K) option in 2008, with attractive company match.
As I understand it, contributions (own, and employer) are fully taxable, both in US and Canada, in the year they are made.
In the USA, income (growth) is tax-free. In Canada, the growth is taxable in the year earned (not deferable).
Correct?
This looks like a more attractive option than a regular 401(k) for someone in my situation. Effectively the employer match is just extra taxable income in both countries, with offseting FTCs each year. Own contributions are also taxed in year received so FTCs line up. The growth being taxed by CCRA is no different than if the money had been invested in any non-registered investment in Canada, with the bonus that there is no IRS paperwork.
The CCRA tax on the growth I assume could not generate a US FTC since the IRS is not taxing it, but that seems a small issue since I usually pay slightly more to CCRA anyway. A US credit would not really help me.
I understand the money is locked up till age 59 1/2 or otherwise subject to withdrawl penalties.
Or have I grossly misunderstood this?

nelsona
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Post by nelsona » Tue Sep 26, 2006 10:13 am

It is probably 'better' than a 401(k) in your situation, because of your Cdn tax residency.

the withdrawal rules are slightly different, since you can always withdraw your taxed portion tax-free, so that makes it even more attractive.

I would still be contributing only the portion which is matched, and would then be focussing on RRSPs, followed by your home, and then straight non-sheltered investement

As to FTC on your US return, in your situation, you should probably be using your final Cdn tax as a deduction on schedule A, which has no limit other that AMT.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

stewak2
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Post by stewak2 » Wed Sep 27, 2006 8:56 am

Will Roth 401(K) contributions or employer match trigger the CCRA RRSP Pension Adjustment the way a standard 401(k) employer match does?
I already max out my RRSP and house is paid for...

nelsona
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Post by nelsona » Wed Sep 27, 2006 1:00 pm

Will Roth 401(K) contributions or employer match trigger the CCRA RRSP Pension Adjustment the way a standard 401(k) employer match does?
Undoubtedly, since the 401(k) triggers PA, then Roth 401(k) would likewise: it's the company's match, in whatever form, that does it.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

stewak2
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Post by stewak2 » Wed Sep 27, 2006 2:33 pm

I'm sure you are correct.
Seems inconsistent though. If my company just gave me the same dollars as income, rather than Roth 401K match, CCRA would tax it exactly the same way. Same for the growth on the match/extra income (assuming invested). CCRA gets full tax, no deferment.
Seems unfair to apply an RRSP PA under the circumstances. Not much differnce between the employer match and any other income.
But what's fair and what's legal are different.

nelsona
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Post by nelsona » Wed Sep 27, 2006 3:46 pm

The whole concept of Roths is foreign to CRA. While they have categorically stated that Roth are NOT pensions under any definition of the Act or the treaty, I'm pretty sure they would view this match as a pension adjustment.

But, if it comes to choosing between 401(k) and Roth 401(K), in your circumstances I would choose Roth.

but, personally, if I were living in canada, I would be funding only RRSP, and persuading my firm to compensate me for 'not being eligible' for the benefits of 401(k).
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

stewak2
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Joined: Mon Sep 18, 2006 2:47 pm

Post by stewak2 » Wed Sep 27, 2006 5:00 pm

Corporate HR thinks they are doing me a big favour by 'permitting' me to live in Canada and commute to work in the US. No chance they would ever help me with anything. They won't even sign my T2200 for my US office expenses. The only reason for commuting is the Canadian salary scale for the same position is so much lower that even with the office expenses and extra taxes, it's worth it.

The Roth 401K option is not available at my company until January 2008. Perhaps I'll just enroll and see what happens. It's up to CCRA to notify me of any RRSP PA, since they review my W-2 and 1040, correct?

nelsona
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Post by nelsona » Wed Sep 27, 2006 5:26 pm

It's up to CCRA to notify me of any RRSP PA, since they review my W-2 and 1040, correct?
Corrrect, but as another recent post (and you) have pointed out, leaving it up to them results in that flat 10% of gross wage PA -- which, in my opinion, is pretty harsh for a 3% match.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

Zemlakh
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Joined: Sat Sep 19, 2020 3:49 am

Re: Roth 401(k) for USC, Canadian Resident?

Post by Zemlakh » Sat Sep 19, 2020 3:50 am

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