I understand that as a non-resident of Canada, I cannot invest non-retirement related investments. My Q is the following:
1- can I max out my Canadian RRSP and US 401K at the same time?
2- since I wont have any income in Canada, I know there wouldn't be any tax benefit at this time, however, I have some spare funds that I'd rather leave in Canada than bring to the US at this time
3- Upon retiring, when I withdraw my funds, in Canada I will only be taxed on the gain (and not the actual principal since that is post-tax money that I am depositing), right?
4- at the time of retirement, if I am a US resident, I am assuming tax I pay on withdrawal in Canada would be covered by US tax treaty and I wont have to worry about double taxation, right?
Thank you for your help.
Max out RRSP and 401K?
Moderator: Mark T Serbinski CA CPA
1. Making a contribution to a personal RRSP has no impact on 401(k) contributions. The RRSP contribution is not deductible on your US taxes.
2. You have until march 1 to contribute RRSP for 2015. If you left sometime in 2015, you might have some tax reduction on your departure return.
3. No, you will indeed be taxed in Canada on the entire withdrawal, including the amount you never deducted. CRA only gives you 2 years to remove the undeducted amount tax-free. You can however use it as a deduction in any future year. So, if you do not return to Canada (or earn taxable wages there), and you withdraw RRSP funds, they will all be subject to 25% tax.
4. Please review much information on the US taxation of RRSP withdrawals. Some or all of your RRSP will be taxable in US if you are US resident or citizen at time of withdrawal, with credit given for Cdn tax paid. In this specific example, the contributions you make to your RRSP (deducted or undeducted) make up part of the "cost" of your RRSP, and can be withdrawn US tax-free (as a proportion of the entire RRSP at the time of withdrawal).
Just to clarify any incorrect notions you might have on the effect of the tax treaty, there is almost no income earned and taxed in Canada that is not also taxed in US if you live in US. There is no such principle that if you pay tax on something in one country, you don't have to pay tax in the other. Cdn wages, interest, dividends, cap gains, pensions, etc, even if taxed in Canada, are all still taxable in US.
2. You have until march 1 to contribute RRSP for 2015. If you left sometime in 2015, you might have some tax reduction on your departure return.
3. No, you will indeed be taxed in Canada on the entire withdrawal, including the amount you never deducted. CRA only gives you 2 years to remove the undeducted amount tax-free. You can however use it as a deduction in any future year. So, if you do not return to Canada (or earn taxable wages there), and you withdraw RRSP funds, they will all be subject to 25% tax.
4. Please review much information on the US taxation of RRSP withdrawals. Some or all of your RRSP will be taxable in US if you are US resident or citizen at time of withdrawal, with credit given for Cdn tax paid. In this specific example, the contributions you make to your RRSP (deducted or undeducted) make up part of the "cost" of your RRSP, and can be withdrawn US tax-free (as a proportion of the entire RRSP at the time of withdrawal).
Just to clarify any incorrect notions you might have on the effect of the tax treaty, there is almost no income earned and taxed in Canada that is not also taxed in US if you live in US. There is no such principle that if you pay tax on something in one country, you don't have to pay tax in the other. Cdn wages, interest, dividends, cap gains, pensions, etc, even if taxed in Canada, are all still taxable in US.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best