Canadian spouse 401K beneficiary

[stewak2]

USC Canadian resident. Spouse is Canadian ciitizen/resident.
Spouse is beneficiary of 401k - for which CCRA taxes have been paid on employee contributions.
If spouse inherits and plan requires lump sum distribution, withdrawl is taxable in US - would my estate be taxed? Or my spouse?
What would be taxed in Canada?
If IRA rollover is allowed, would my spouse, as Canadian citizen, be allowed to do so? (probably not, I would guess).

[nelsona]

Anything pension that you transfer to your spouse at death will not be subject to US or Cdn INCOME tax.

However, If (when) you die, your 401(K) is part of your estate, so lets deal with that first.

Whatever you bequeth to your wife (except for a few $K -- drastically less than the millions if she were a USC) will be subject to ESTATE tax, first. How your estate choses to pay that will depend on your other resources.



After that, anything she would withdraw would be taxable in her name (in both US and Canada). I don't think she would then benefit from any exclusions due to the non-deducted contributions, but I may be wrong. That might even be funds drawn out of the IRA to pay estate tax.

Your big concern is the estate tax, which may require some planning (or may hasten the need for her to become USC). You may need some insuarnce policy, or other assets to pay the estate tax, and better mesh the Cdn and US income taxes. Pretty complicated.

There is a real jeopardy in having non-USC spouse in estate tax planning.

[stewak2]

Well, the 401K is my only US-based asset.
Wife is RRSP beneficary, joint owner of (Canadian) house, vehicles, and bank accounts.
She has no plans to become a US citizen and we have no plans to move to the US. Since she isn't a US citizen, the only other issue I could think of is the RRSP.
How would the IRS treat that? The CCRA will allow her to roll the plan into her own RRSP ( at least that is my understanding ). The IRS, I imagine, will want tax on the plan growth - paid by my estate?
Am I wrong about the other assets (house etc)?

[stewak2]

Some web research seems to indicate that for non-USC spouse there is 1,500,000 exemption on assests transferred at death; for USC spouse, no limit.
Since my estate would be under 1.5M, do I have much to be concerned about?

[nelsona]

I would question the 1.5 million for non-USC. It might be though.

While your 401(K) might be your only US-based asset, your estate would include EVERYTHING, including your Cdn pensions, insurance, assets, house, etc.

So, your estate could EASILY be more than 1.5 million (I would think it already is).

If you are doing web reasearch, kindly post the URL. This is a big problem for Cdns with US ties.