401K beneficiary - Canadian spouse?

stewak2 · Post by **stewak2** » Wed Sep 18, 2013 6:54 am

USC resident in Canada commuting to work in USA.
Wife is Canadian citizen ( only ) and Canadian resident.
Currently is beneficiary of my employer 401(k).
Should I die, I imagine tax would be withheld before she could inherit the funds? (Form 1042, and get an ITN? )
How is the tax calculated?
Would it also be taxable in Canada?

nelsona · Post by **nelsona** » Wed Sep 18, 2013 8:01 am

she would inherit the 401(K) tax free, and would then have the choice to keep it and take it as a pension or lump sum.

stewak2 · Post by **stewak2** » Wed Sep 18, 2013 9:58 am

Taxation would occur at withdrawl, then - flat 30% if lump sum, ? if pension?

nelsona · Post by **nelsona** » Wed Sep 18, 2013 10:25 am

Your other (better) choice is to have the 401(k) go to your estate and pay the tax, which might be less. Then your spouse gets what's left free and clear.

The problem with inheriting the 401(k) itself as a Cdn resident, is that regardless of what the tax is in US (15% as a pension or 20% lumpsum), it is all taxable in Canada, which will be more than the US amaount, and comes with the US tax/reporting issues.