Canadian resident 401k contributions to Rollover IRA to RRSP

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sjantzi
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Joined: Wed Feb 20, 2013 11:44 am

Canadian resident 401k contributions to Rollover IRA to RRSP

Post by sjantzi »

I had a 401k which I made contributions to while a Canadian resident. There was no employer matching. I'm no longer working for that company and have rolled the 401k into an IRA.

I'd like to transfer this IRA into my RRSP. I have enough Canadian income to offset the taxes paid to the USA with the FTC. Everything should be fine there.

During my research on this I'm reading that 401k contributions made while a Canadian resident cannot be transferred into an RRSP while IRAs do not have this condition.

My question is am I allowed to do this transfer since its now in an IRA or since the original contributions were made while a Canadian resident to a 401k it would not be allowed?
nelsona
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Re: Canadian resident 401k contributions to Rollover IRA to RRSP

Post by nelsona »

you would need to point out this research about Cdn contributions to a 401(k), I know of no such distinction of how 401(k) funds are viewed by CRA for this purpose. CRA procedures typically require that the maneuver be performed with IRA funds rather than 401(K) regardless.

So it is common practice that 401(k)s first be rolled over into an IRA before "transfer" (it is not a true transfer of course), to an RRSP.

Of course, one thing to consider is that long ago, 401(k) contributions made as a Cdn resident were not tax deductible, thus could be withdrawn at some point tax free in canada, which would make putting them in an RRSP unwise from a tax point of view. Now of course, 401(k) contributions ARE tax deductible for Cdn residents, so putting them in an IRA for the unltimate purpose of putting them in an RRSP is not as harmful tax-wise.
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sjantzi
Posts: 64
Joined: Wed Feb 20, 2013 11:44 am

Re: Canadian resident 401k contributions to Rollover IRA to RRSP

Post by sjantzi »

Thank you for the reply. All contributions were made AFTER the change that allowed them to be tax deductible in Canada. I've seen this reference in a few places see below (sorry for the extra long links but they should highlight the text)

https://www.howlandtax.com/answers/05Se ... %20made%3B

https://www.manulifeim.com/retail/ca/en ... f%20Canada.

This mentions converting it to an IRA before transferring it because the 401k would be ineligible
https://www.advisor.ca/columnists_/meli ... 20transfer.

I'm not sure but they may be referencing this:
https://www.canada.ca/en/revenue-agency ... n%20Canada
nelsona
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Re: Canadian resident 401k contributions to Rollover IRA to RRSP

Post by nelsona »

So, as I said, 401(k)s typically can't be the source of the RRSP "transfer", regardless of whether the funds were contributed as a US resident or not.


So the stipulation that the funds had to be contributed to a 401(k) as a US resident is really moot. Once the REQUIRED rollover to an IRA is made, the history of the 401(k) is forgotten.

Just remember to not transfer IRA funds that are not taxable in US (for whatever reason), as they would become taxable in Canada once in your RRSP.
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nelsona
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Re: Canadian resident 401k contributions to Rollover IRA to RRSP

Post by nelsona »

From the Manulife document:

"If your 401(k) plan isn’t eligible for a rollover directly to an RRSP (e.g., because the benefits weren’t attributable to services rendered by you, your spouse, or former spouse while a non-resident in Canada), it can be rolled into an IRA that qualifies for a transfer to an RRSP. Subsequent to this, the new IRA can be transferred to an RRSP on a tax-deferred basis provided the conditions required for a transfer from an IRA to an RRSP, as outlined above, are satisfied."

In my opinion, the new IRA wipes clean any non-eligible 401(k) income.
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sjantzi
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Joined: Wed Feb 20, 2013 11:44 am

Re: Canadian resident 401k contributions to Rollover IRA to RRSP

Post by sjantzi »

Thank you very much for the info. I feel confident in proceeding.

My understanding is:
- Make disbursement from the IRA, pay USA taxes
- Deposit the disbursement into my RRSP plus additional funds to top up to the pre-USA tax amount
- Claim this as foreign income and claim FTC for amount paid to USA
- Report this pre-tax amount on Schedule 7 Part C - Transfers

I believe I'll get a 1099-R from Fidelity. Would this be all Revenue Canada would require as proof that the funds came from an IRA?
nelsona
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Re: Canadian resident 401k contributions to Rollover IRA to RRSP

Post by nelsona »

Yes.
Remember that the 10% penalty you will owe (if less than 59.5 yrs old) is ALSO creditable. It wasn't at one time, but is now.
nelsona non grata. Non pro. Search previous posts. Happy Browsing :D
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