401K advice considering I'll retire in Canada

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OttawaSenators
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Post by OttawaSenators »

I agree with nelsona. The employer's match is already in traditional 401k anyway. So it is better to diversify and also to pay the taxes up front.
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OttawaSenators
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Post by OttawaSenators »

Now let's say hypothetically this is my last year in the US and I am retiring in Canada next year. All my 401K is in Roth. What do I do to get that money? Should I withdraw before or after moving to Canada?
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nelsona
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Post by nelsona »

You leave it. It's a roth. let it grow tax-free
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brianbbc
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Post by brianbbc »

responding to may 06 post. you said you can have a large 401k tax build up. but what if when you take distributions you have a mix of 401k and roth. could you not limit you tax burden in canada by taking only a smaller amount of 401k and them the rest from the roth for yearly living expenses? My problem right now is that while still in the US doing a conversion to the roth with money already accumulated in the 401k would jump me into a much higher tax bracket. plus the stock market is at all time high.
nelsona
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Post by nelsona »

The stock market will be higher when you retire, so that doesn't enter into it.

Ypur Roth is not taxed. Whether you have 10% roth or 80% roth, your 401(k) will be taxed higher in canada than it would be if you convert before leaving.

Eventually you will HAVE to take taxable 401(k).

Your point thoug is exactly what I was telling the other poster. Forget 401(k) if you are young as you are creating a huge taxable account for the future. Tax deferall is great, but tax-free, in the long run, is better.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
OttawaSenators
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Post by OttawaSenators »

Here is a good read on Roth 401K:

http://www.investopedia.com/articles/re ... th401k.asp

Note:
"Keep in mind that assets held in a traditional 401(k) account cannot be converted into a Roth 401(k)."

So contribute to Roth as much as you can as soon as you can.
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nelsona
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Post by nelsona »

Little clarification. 401(k) can't be converted to Roth401(K) and vice versa WHILE YOU ARE PARTICIPATING in the comapny plan.

BUt what we are discussing here is converting 401(k) to a Roth AFTER quitting.

Once you finish working for a company, you can do all kinds of things. But while working, once you designate the contribution as Roth401(k) or 401(k), it can'r be moved internally.
But you can designate how you contribute on each paycheck and change this weekly if you wish.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
brianbbc
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Post by brianbbc »

Let me know what you think. I am 48, wife 44. Present roth values 185K in mine, 93K in wife's. IRA values 480K mine, 110K wife's. Will live in US for 6 more years and make max contributions then move back to Canada with estimated values of my IRA 900K, wife's 250K and roth 500K (2 to 1 split). Will not take distributions till 591/2 with the retirement accounts growing significantly on there own.

Salaries consistent with combined adj. gross 126k, taxable income 94K, and total taxes owed 29K. This suposidly put me in 28% tax bracket but probable paid less on actual taxes.

Given age and circumstances, the question is whether to convert to Roth or not, spread over the next 6 years?
nelsona
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Post by nelsona »

Well, you cannot convert your Roth (I assume we are talking Roth401(K) here), until you stop working.

Also, what would be the point of putting money in a 401(k) or IRA and then convederting existing funds?

I'm not sure about what you said about your AGI and tax bracket. Atyaxable income of 94K puts you in the 25% FED bracket, not the 28%. I don't know what your state level is.

You are getting 25% deduction for anything you put in 401(k)/IRA. Do you think you will be taxed higjher than that when you retire? If so, then I would be putting all my CONTRIBUTIONS in Roth/Roth401(K) and worry about converting down the road when 1 or both of you is not working for a year.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
nelsona
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Post by nelsona »

They can however be converted to a simple Roth, after one leaves that company.
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nelsona
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Post by nelsona »

There is some unnecessary confusion being injected into an otherwise simple process:

There are 4 "types" of accounts we are dealing with ere:

Traditional IRA
Roth IRA
401(k) (or any other employer-sponsored plan)
Roth401(k)

One can only contribute to a particular 401(k) or Roth401(k) while working.
Once moneys are contributed to the plan, they cannot be recharacterized between the Roth (after-tax) and the 401(k) (before tax) portions. Any matching regardless of the employees contribution is ALWAYS to the 401(k)
portion. In other words, even if you put 100% of your contributions in a Roth401(k), you will have a 401(k) portion, funded by the employer's matching amount.

Once you stop working, you have 2 "FUNDS": a 401(k) and a Roth401(K).

If you go to another job, you can transfer ("rollover") these funds to your new employers plan. But then you must put the 401(k) funds in their 401(k) and your Roth401(K) into their Roth401(k).

Your other choice, at any time after leaving your first plan, is to instead roll these into personal IRA and Roths. Or you could convert the 401(k) portion into a Roth, which would be a taxable event.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
wandersean
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Post by wandersean »

Nelsona said:
Well, you do need to consider US expatriate and estate tax, but by treaty, Roths, since they will not be subject to income tax in US (and thereby Canada) as long as you make no contribution to them after becoming Cdn resident, and you dutifully file the yearly statement with CRA after you go back to Canada.

Quick question on this statement -- where can I read about the fact that this statement needs to be made yearly? The reason I ask is that CRA Technical News No. 43 (link below) seems to indicate election only needs to be made once per account and is good for all following years.

http://www.cra-arc.gc.ca/E/pub/tp/itnew ... -43-e.html
nelsona
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Post by nelsona »

Yes. remove the word "yearly". That statement must be filed with your Newcomer tax return, and is irrevocable thereafter.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
wandersean
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Post by wandersean »

Thanks!
nelsona
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Post by nelsona »

Just for complte accuracy, the statement should be sent separarely from your retunr, to the specific address listed in the bulletin, but is due at same time as your newcomer tax return.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
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