401(k) Eligibility

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Kevin
Posts: 2
Joined: Wed Oct 27, 2004 11:57 am

401(k) Eligibility

Post by Kevin »

I need your help in sorking out an issue. I work in Michigan and live in Windsor, Canada. I was contributing to my 401K and my employer was matching 4% of it. Last week allof a sudden the emplyer told that I'm not eligible for 401K since I live in Windsor. I don't know if there is any such law/policy of IRS? Also I wonder, if I'm eligible to get taxed for Social Security, medicare etc...then why not for 401K?? Any advise, suggestion, pointer to IRS publication will be very helpful. Many thanks in advance!
Nelson
Posts: 25
Joined: Wed Oct 27, 2004 12:01 pm

Post by Nelson »

There is no IRS regulation that would forbid you from having a 401(K), although as has been pointed out many times here, for a Cdn resident this does not make much tax sense, other than the 4% that the company matches. The contibutions you make aren't tax deductionble in Canada)
There is however a securities exchange issue for the firm that manages your 401(K) since they technically are not allowed to buy and sell securities on behalf of a Cdn resident. Some don't care about this, but some are sticklers. So if you REALLY want to keep contributing to 401(k), then your fight is with the managers.

But, you are better off not contibuting to your 401(K) anyways, and should be filling your RRSP instead, and negocitaing with your employer to give you the matching as salary instead.
Kevin
Posts: 2
Joined: Wed Oct 27, 2004 11:57 am

Post by Kevin »

Thanks for your advise. I don't see much tax benefit other than 4.5% which is ~6000 USD for me. I don't want to let that go for no obivious reason. Also on the security trade issue..don't you think as a commuter I'm a dual status alien. I mean I could be treated as a resident alien even though i'm a non-resident. What do you think?
Nelson
Posts: 25
Joined: Wed Oct 27, 2004 12:01 pm

Post by Nelson »

Who said anything about you being "dual-status"?
Your an Ontario Resident. Period.

Besides, as I said, its a securities issue, not a tax issue. Anyone dealing securities for Ontario residents is supposed to be registered with the OSC.

Your fund mangers obviously have found this out, and that is why they are putting a stop to this.

That is why now is the best time for you to hit up your firm for them to give you the $6,000 as salary.

That, and pray that they don't force you to collpse your 401(k) altogether, which would mean a huge tax hit in both US and Canada unless you can find a US company to accept your rollover.

And as to your tax situation, any cdn can file a US tax return. That still doesn't make them a US resident, especially in the eyes of your 401(k) broker.

You could 'move' to a US mailbox if you wish, it wouldn't affect your taxes at all, and might fool your broker into believing you are living in MI. But even this is smells a bit.
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