401k election

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Fug1
Posts: 57
Joined: Sun Mar 09, 2014 12:00 pm

401k election

Post by Fug1 »

Hi all,

I was reading an article that seems to suggest a CRA election is required for any 401k that isn't fully funded by a US employer. I was under the impression the election is only required for Roth accounts.

Relevant statement:

"Election for Tax-Deferral: If a 401k plan was not entirely funded by U.S. employer contributions, the Canadian account holder must make a one-time election in his/her Canadian tax returns to benefit from tax-exempt status until withdrawals are made from the plan. This election must be made in the Canadian tax return for the first year in which the account holder becomes a Canadian resident."

He doesn't say this is specific to Roth. Is this just poorly explained?

TIA!

https://levysalis.com/blog/ownership-of ... canadians/
nelsona
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Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: 401k election

Post by nelsona »

Never heard of this, has not been advised by any other cross0border types, and is nowhere in any CRA reference.

Think he got confused with Roth accounts.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
Fug1
Posts: 57
Joined: Sun Mar 09, 2014 12:00 pm

Re: 401k election

Post by Fug1 »

Thank you, @nelsona. That is good to hear.

I think I'm realizing now that my understanding of 401k plans is limited. The Canadian Roth election instructions seem to mostly reference IRA accounts. I filed election letters for my Roth IRA and Roth 401k (separate letters), thinking they were essentially the same thing.

There is this section in the Canadian Roth election instructions that is particularly confusing to me:

"1.26 There are several other types of U.S. retirement arrangements exempt from taxation under the Code that qualify as a pension under the Canada-U.S. Treaty, but that are not foreign retirement arrangements under the Act. These include, for example, 408(p) SIMPLE IRAs, 408(k) SEP IRAs, 401(a) plans, and 401(k), 403(b) or 457(b) plans (including Roth accounts). Whether an individual should file the Election for such an arrangement depends on whether the income accrued in the arrangement is taxable under the Act on a current basis. This would require a complete review of the facts and terms of the particular arrangement. However, it is the CRA’s understanding that employers typically make contributions to such arrangements, in which case the arrangement will be characterized either as an employee benefit plan (EBP) or a retirement compensation arrangement (RCA), as those terms are defined in subsection 248(1). Because an individual who holds an interest in an EBP or RCA is not subject to current taxation under the Act on the income accrued in the arrangement, there is no benefit in filing the Election."

If an individual only needs to file an election if the income accrued is taxable on a "current" basis, I think that only applies to Roth accounts because income tax is deferred under the Act for non-Roth accounts? So if a person has a Roth 401k, they should file an election as they would for a Roth IRA?
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: 401k election

Post by nelsona »

Yes. They are simply employer-sponsored Roth accounts.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
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