# Retire in US and move to Canada - transfer 401K to RRSP ?



## sherwooddavid (May 5, 2009)

My Canadian sister and her American husband have retired and are moving back to Canada to live. 
Her husband just got accepted as a permanent resident of Canada and submitted his retirement notice last week and is now trying to figure what to do with his 401K.
If he cashes it in before he leaves next month and transfers it to a Canadian bank there will be a 20% hold back by the IRS and the remaining will be taxable income for the year and put him in a high tax bracket so more taxes. 
I’m wondering what his best options are ? 
Can a 401K be transferred to an RRSP even though he’s not a Canadian citizen just a permanent resident ?
Are there any US/Can tax experts in Canada that can advise him on how to proceed. 
Any advice would be appreciated. 
Thanks 😊


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## AltaRed (Jun 8, 2009)

https://pacificapartners.com/wp-con...-Your-US-401k-or-IRA-to-an-RRSP-in-Canada.pdf is a bit dated (2016) but it appears one has to go to an IRA first.

Another article from Manulife on the same issue Transferring a 401(k) Plan and IRA to a Canadian RRSP | Manulife Investment Management


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## Eclectic21 (Jun 25, 2021)

Here is another article, dated last year.








Transferring a 401(k) or IRA to Canada | Advisor's Edge


Issues and strategies for Canadians thinking about transferring their U.S.-based retirement plans




www.advisor.ca





My understanding is there are specific requirements to do it properly (i.e. it is not as simple as filling out some paperwork and waiting for the funds to show up). 

One example is that the 401K contributions must have been while a Canaidan non-resident. Another is that one only has the net of the withdrawal minus the US withholding tax to contribute to the RRSP, despite needing to contribute the full amount.








Transferring a 401(k) or IRA to Canada | Advisor's Edge


Issues and strategies for Canadians thinking about transferring their U.S.-based retirement plans




www.advisor.ca






Cheers


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## james4beach (Nov 15, 2012)

sherwooddavid said:


> Can a 401K be transferred to an RRSP even though he’s not a Canadian citizen just a permanent resident ?
> Are there any US/Can tax experts in Canada that can advise him on how to proceed.


I had an American 401(k) and transferred it to an RRSP. So I know it can be done (I did it last year). This is not an easy transaction to make. You will need to consult with a Canada/US tax expert because it's a delicate operation.

Some resources for you

An article at advisor.ca, was very useful to me
Article at investmentexecutive
Sunlife document on strategy with US retirement plan tansfers, PDF file

First thing is you'll want that 401K moved to an IRA as I was told this reduces the complexity. So my transfer was from an IRA to an RRSP.

One challenge is that you are given temporary RRSP extra contribution space (this is a one-time thing, special situation!) to be able to absorb the IRA. However, you are only given an allowance for the part of the IRA which was *your contributions*. It will not cover the portion the employer matched. I had to go through all my 401(k) paperwork and figure out how much of the IRA came from my own money originally.

Another wrinkle as @Eclectic21 alluded to is that the American brokerage is going to withhold a whopping amount of the IRA for federal tax withholding. I believe it was 30%. So let's say the IRA is worth 100K (and you can read this in the articles I mentioned).

When you get the IRA broker to send the money to Canada, they will only send you 70K and will send 30K to the IRS.
In Canada, to complete the RRSP transfer you will need to contribute 100K. That means you need to come up with the *extra 30K yourself*.

Eventually.... you can get most of the over-payment to the IRS refunded to you. I am actually waiting on the IRS, for several months now, to refund exactly this overpayment back to me. But I can also tell you that this IRS tax filing was very difficult to make, you will not be able to do that on your own.

Anyway the whole thing is quite complicated. You will need to see an expert.

Assuming the IRS actually refunds my money and doesn't fight me, I would say that this process worked nicely. I paid very little effective tax when moving my IRA to an RRSP, and I'm happy that I did it. Now I've got all my self-directed pension money under one roof, in one country.


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