401k Deductions + Roth for Canadian Tax Return

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mydigital
Posts: 4
Joined: Mon Feb 15, 2021 10:23 pm

401k Deductions + Roth for Canadian Tax Return

Post by mydigital »

I am a Canadian citizen and my family lives in Canada. Last year, I worked in US for 5 months and contributed full amount ($19.5k) to 401k and also made a Roth contribution of $6k. For rest of the year, I was in Canada and had no income. I had some questions regarding tax treatment of my US 401k and Roth accounts:

1. For my CAD taxes, I understand that I need to add my 401k contributions to my wages to calculate the tax. Is that right ?
2. For my CAD tax returns, how much of my 401k contributions can be deducted from my gross income ? I had 10k RRSP room in Canada and have no RRSP account.
3. What shall I do with my Roth account while filing Canadian taxes ? What forms do I need to fill to declare it ?

I am genuinely confused as this was my first time working in US.
nirvana_1959
Posts: 53
Joined: Fri Mar 18, 2016 9:17 am

Re: 401k Deductions + Roth for Canadian Tax Return

Post by nirvana_1959 »

1. Yes. Canadian income = W2 wages + 401K
2. Entire 401K amount can be deducted. "Had 10K RRSP room.." ?
3. Roth IRA <=> Canadian TFSA.

"The treaty provides that if an individual who is a resident of Canada makes contributions to a Roth IRA while a resident of Canada, the Roth IRA will cease to be considered a “pension” for treaty purposes at that time with respect to contributions and earnings from such time, and earnings from such time will be subject to tax in Canada in the year of accrual. As such, the Roth IRA will in effect be split into a “frozen” pension that continues to benefit from the exemptions on distributions and accruals and a savings account that does not benefit from the exemptions."

from https://expattaxprofessionals.com/blog/ ... %20subject
mydigital
Posts: 4
Joined: Mon Feb 15, 2021 10:23 pm

Re: 401k Deductions + Roth for Canadian Tax Return

Post by mydigital »

Thanks for the reply.

1. All good
2. I can deduct the entire 401k amount (19.5K) while filing my Canadian taxes and I am not limited to deduct only the amount allocated to my RRSP Contribution room ($10k) ? So, my tax liability in Canada is greatly reduced ?
3. So, any Roth Contributions which I made while physically present in US will not be subject to any taxes in Canada ? and I need to file the election under paragraph 7 of Article XVIII to defer any taxation in Canada with respect to income accrued in my Roth IRA ?
4. Am I resident of Canada for tax purposes ?
nelsona
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Re: 401k Deductions + Roth for Canadian Tax Return

Post by nelsona »

So, the Roth was a mistake.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D
Bubba Gums
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Re: 401k Deductions + Roth for Canadian Tax Return

Post by Bubba Gums »

If you withdraw contributions (including any net earnings on the contributions) from the roth by the due date of your return for the year in which you made the contribution, the contributions are treated as if you never made them. If you have an extension of time to file your return, you can withdraw the contributions and earnings by the extended due date. The withdrawal of contributions is tax free, but you must include the earnings on the contributions in income for the year in which you made the contributions.
mydigital
Posts: 4
Joined: Mon Feb 15, 2021 10:23 pm

Re: 401k Deductions + Roth for Canadian Tax Return

Post by mydigital »

Yeah, thanks for clarifying.

I can call my broker and withdraw the money. I contributed $6k and presently the balance is $5900. Therfore, I can withdraw the entire $5900 and as there is a loss, there is no tax needed to be paid.

What technical term shall I use after I call my broker ? Just tell them I contributed by mistake and I need to withdraw the money ? Do I also need to close the account or can I keep it open with zero balance ?
nelsona
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Re: 401k Deductions + Roth for Canadian Tax Return

Post by nelsona »

And for the 401(K) contributions, you must file RC268, to determine how much of your 401(k) is deductible, and to determine futire contribution room.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D
mydigital
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Joined: Mon Feb 15, 2021 10:23 pm

Re: 401k Deductions + Roth for Canadian Tax Return

Post by mydigital »

Hi nelsona

As per form RC268, can I deduct the full 19.5K which I contributed to my US 401k or is that amount limited to my RRSP deduction limit for 2020 ? My RRSP limit was 10k ?
nelsona
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Re: 401k Deductions + Roth for Canadian Tax Return

Post by nelsona »

Your deduction is limited by the contribution room.

The good news is that as long as you made no RRSP contribution, there will not be any over-contribution penalty. Just remember in future that you won't be able to make any RRSP contributions, and that your 401(k) deduction is limited to your yearly amount determine by the wages you report.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D
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