401K Withdrawl for Canadian resident. Help needed!

[pstyles]

Quick Question to the trusty accountants out there.

I used to live in the USA but moved to Canada. I'm Canadian resident.

I had 20K in my 401K that I decided to consolidate here in Canada. I withdrew it, paid the tax in the USA. I work in the USA so I file in the USA as well.

My accountant now says that I can't pay the tax in the USA but instead have to pay tax on the $ in Canada at 39% cause they put it right on top of my income bracket. I'm basically getting screwed for over the difference in the tax rates. In the USA I would be at only 10% but instead I'm paying 39%. Basically I'm paying 29% out the window. About $6K! I'm kind of furious. What can I do????? I already maxed my RRSP this year.

[nelsona]

Just to clarify what you accountant said, or should have said: You DO have to report and pay the 401(K) withdrawl in US, but you ALSO have to report it in canada. You also have the 10% early withdrawl penalty in US. Don't forget this.

Other than the tax credit for the tax (but not the penalty) you paid in US, you are taxable on all income at your Cdn rate.

I guess you should not have consolidated. There was no harm in leaving it in US until your Cdn taxrate dropped (ie. at retirement).

You were allowed to put the 401(k) withdrawal into your RRSP (without afecting your RRSP contribution limit), but it is too late now.


By the way, all your income is subject to this treatment. You report it all in US and all in canada.

[pstyles]

Yeah, I was just trying to consolidate my $, but looks like I screwed myself for taxation in the higher country and at the highest possible rate. I should have asked someone.

Is there any possible recourse?

[nelsona]

Nope.

[pstyles]

I would have rather gone to the casino and bet it all on red!