I have an income of about 100K in US and my company matches 2% of my 401K and I live in Vancouver so I am still filing cdn taxes after US taxes and Foreign tax credit etc.
Just wondering is it worth it for me to join the 401K in the long run assuming I keep paying cdn taxes on my US income for next 3-4 years.
Need advice ?
Moderator: Mark T Serbinski CA CPA
2% isn't that great; what percent do you have to fund to get that.
A good 401(k) usually matched about upto 4% of the first 6% you put in.
You might consider:
(a) only putting the minimum that gets you your match. CRA allows you to (eventually) take out your contribution tax-free. You may have difficulty meshing the US tax and resulting credit when you eventually do take out the money.
(B) asking that your firm contribute to an RRSP instead; many cross-border workers have come to arrangements whereby they 'prove' that they have contributed to theor RRSP and employerr 'matches' an equivalent amount that would have been put in a 401(k).
<i>nelsona non grata</i>
A good 401(k) usually matched about upto 4% of the first 6% you put in.
You might consider:
(a) only putting the minimum that gets you your match. CRA allows you to (eventually) take out your contribution tax-free. You may have difficulty meshing the US tax and resulting credit when you eventually do take out the money.
(B) asking that your firm contribute to an RRSP instead; many cross-border workers have come to arrangements whereby they 'prove' that they have contributed to theor RRSP and employerr 'matches' an equivalent amount that would have been put in a 401(k).
<i>nelsona non grata</i>
Thanks for the reply Nelson
--After one year of employment, the employer will contribute to the pension account two percent (2%) of gross income if the employee contributes four percent (4%) of his/her gross earnings to a deferred compensation plan. Payments will be made bi-weekly --
This is what the 401K plan says, so What I understand is that if I put in 4000 dollars annually, I will get 2000$ (free money) from the employer.
2 Questions
1)CRA allows you to (eventually) take out your contribution tax-free..
Can you explain this please
I thought I will pay cdn tax on 4k contribution in canada now and then pay US tax on 6K when I take out money in US later. Correct me if I am wrong.
2)Is this worth it
Thanks Nelson
--After one year of employment, the employer will contribute to the pension account two percent (2%) of gross income if the employee contributes four percent (4%) of his/her gross earnings to a deferred compensation plan. Payments will be made bi-weekly --
This is what the 401K plan says, so What I understand is that if I put in 4000 dollars annually, I will get 2000$ (free money) from the employer.
2 Questions
1)CRA allows you to (eventually) take out your contribution tax-free..
Can you explain this please
I thought I will pay cdn tax on 4k contribution in canada now and then pay US tax on 6K when I take out money in US later. Correct me if I am wrong.
2)Is this worth it
Thanks Nelson
As you know, you are entitled to contribute $13,000 to your 401(k), none of which is tax deductible. Your company will put in $2000, regardless of how much more than $4000 you put in.<p>So if you were to put in $4000 a year, and company contributes $2,000, for say 5 years. At that point the plan would be worth, for example $50,000 (I'm an optimist).
If you were to collapse it at this point, you would be on the hook to Canada for $30,000 ($50,000 - $20,000 of your own contrbution for which you did not get a Cdn tax deduction). You would of course also have to pay IRS tax and penalty on such a withdrawal, and mesh the credit into your Cdn tax return.
When you finally withdraw it.
As I said, the $4000 to get 50% insatnt return is probably worth it. Any more than that would depend on how agressively you want to fund your retirement. CRA would reduce your RRSP limit by a fake PA (pension adjustment) for having a 401(k), so you would not be able to max out both.
<i>nelsona non grata</i>