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Name: Email: Keyword Tags 06/03/2014 Switch to Canada Contact Us Request Information Clie Fund Management Crossborder Investors Eltog l-lome Transferring your 401K to an RRSP Institutional Investors Navigating a Sea of Opporl Media Educatil (AJ) Suii SU ll Bank of Canada Bernanke BNN Bond Market Brazil Calgary Canada capital management China commodities corporate earnings debt de?ation ECB economy emerging markets Federal Reserve Financial Post gold India Inflation Interest rates investment compass Montreal Obama oil PaCa Pa ers arms real estate real estate bubble Recession 500 sru stimulus stock market stocks Surrey St: Toronto unemployment us consumer US dollar Vancouver Vancouver Capital Management Archives February 2014 November 2013 September 2013 August 2013 May 2013 April 2013 February 2013 January 2013 December 2012 October 2012 September 2012 July 2012 June 2012 May 2012 April 2012 March 2012 February 2012 January 2012 December 2011 November 2011 October 2011 September 2011 August 2011 July 2011 June 2011 May 2011 April 2011 March 2011 February 2011 January 2011 Paci?ca Perspectives beyond consensus I A I??lt I t?it . l?aplul m: an." Transferring Your IRA I 401 to Canada When mOving between Canada and the USA. there are common challenges that individuals often face. Aside from the practical aspects ofthe mOve. there are also tax and ?nancial considerations to assess. In particular. you may have accumulated savings in a recognized retirement arrangement like a 401k plan or an individual IRA. What should you do with these retirement plans if you move across the border and what are some of the consequences? Unfortunately. there is no simple answer for the procedure to follow but below are some tips and general information. Often expatriate employees accrue retirement andfor pension bene?ts while working for an employer. If you decide to move back home (Canada in this case), what should you do with the 401k or IRA account? Your options are to: 1. Leave your 401K or IRA in the US and have someone manage the investments for you; 2. Cash out the plan and pay a lot of unnecessary tax; 3. Start to take a retirement distribution (if you are of retirement age): 4. Transfer the plan to an RRSP in Canada. An added complexity to these four choices is that they are affected by tax implications and securities regulations. Option 1] Leave your in the US If you choose this option. you would essentially leave the plan intact until you require the income during retirement. Unless the manager of the 401k permits. you may be required to transfer the 401k to an IRA. If you are over the age of 59.5. you would see a 20% withholding tax on your distributions. lfyou are under this age threshold. there would be an additional 10% penalty tax unless you meet certain conditions. There would be no real tax implications on the earnings within the plan until you begin to make withdrawals. In Canada. the Canada Revenue Agency (ORA) would typically tax you on an IRA if the USA's lntemal ACIFICA I?All'l I: It 5- a Requue assistance with your Cross- border portfolio? Contact Paci?ca Partners to learn how we can help. {Click here} Revenue Service (IRS) takes a similar position. which normally happens once you start withdrawals. Page 1 of 4 December 2010 November 2010 October 2010 Seplember 2010 August 2010 July 2010 June 2010 May 2010 April 2010 March 2010 February 2010 January 2010 December 2009 November 2009 October 2009 September 2009 August 2009 July 2009 June 2009 May 2009 April 2000 March 2009 February 2009 January 2009 06/03/2014 Choosing to leave the plan as is in the US can also lead to other challenges. Many investment ?rms and brokerages will not allow an investment account (retirement account or otherwise) to be held by a non' resident. You will need to open an investment account with either a dlscounh?online broker or a full service investment firm before terminating your US residency. lfyou wait until you have moved to Canada to secure investment accounts and initiate transfers of IRAs. it may be cumbersome although not impossible. Unlike some Canadian investment ?rms. US investment firms are very reluctant to have an investmentl'retirement account held by a non-resident of the US. Option 2) Cash out the plan and pay a lot of unnecessary tax; This option is perhaps the least favored. There is no compelling reason why you should redeem your and cash out the plan. unless you are in desperate need of cash, For the vast majority of individuals it just doesn?t make sense from either an investment management or tax perspective. Option 3) Start to take a retirement distribution; This option is only truly relevant for those old enough to consider retirement. While resident in Canada. retirement distributions from your US based 401 will be subject to US withholding tax. The distribution will also be declared as a foreign pension in Canada by CRA. Consult a qualified crossborder tax professional to ensure proper rep of such foreign income and to optimize use of foreign tax credits. an RRSP in Canada Option 4} Transferring a 401 A 401k is an employer sponsore efrned contribution (DC) retirement arrangement. If contributions were made by your employer while you were a resident of US, you will be allowed to make a lump-sum transfer from your 401k. Speci?cally. you will be able to transfer a 401k to a rollover IRA (employer permitting) and then transfer the IRA to a Canadian RRSP. 0-.- 401 RRSP Transfer Transfer Step 1 While Resident While Resident Upon Return Canada (In. Click Here to view a larger version of this diagram In more detail, the transfer of a 401 ultimately to an RRSP usually occurs as follows: 1. Open a Rollover IRA account with an investment ?rm capable of crossborder investment management. 2. Rollover the 401k to an IRA while still a resident of the US. You cannot roll a 401k directly to an RRSP. 3. Withdraw all of the NRA as a Canadian resident UpWegssessed 20% holding tax. osslb - A - waive tam-no,- . rJed .. 96). If you are under 59.5 years. there will be an additional . I .1931 . sthen transferred to an RWhe subsequent deposit into- . ?an' RSP must occur in 5. Determine the value of the transfer in Canadian dollars. 6. The full gross withdrawal including the withholding tax is included as Canadian income with a deduction referencing a section 60mm) transfer. This results in no additional tax liability to Canada. 7. The 20% withholding tax paid to the IRS in point number above may be claimed as a foreign tax credit (FTC) for Canadian tax purposes. FTCs require a more detailed explanatiom I Now the complications. The 401k must be a lump-sum transfer from a pension or superannuation and employment services rendered while a non-resident of Canada. There are different rules for individuals living in Canada and working in the US or in the case of temporary employees working in the US for lees than 5 years. The withholding tax paid to the IRS that is claimed as a foreign tax credit In Canada requires-attenuate.? a tax prec?tioner. Generally, the taxes-Ligsz in Canada. Page 2 of 4 06/03/2014 However. since the concept of FTCs are multi-faceted. It can .r?mH take several years of claiming credits to attempt to recoup the /Checklist of things to knew:\ initial tax was paid. when trans?rring 401K: to RRSP: Please bear in mind that you haven't really paid tax to Canada - A :11 at this point on the IRA withdrawal. only to the IRS. Therefore. you need to have suf?cient Canadian Income tax owing from certain sources In order to utilize the FTCs. Canada views the withdrawal as a transfer while the US views it as an early lump sum withdrawal and thus applies the 20% withholding tax. The 401K must be a "transferable plan". Rules differ for short term workers and workers commuting between Canadai?U 5. Foreign Tait redits (FTCs) require advice of a tax practitioner. IZI IE A ?nal distinction also needs to made if the IRA account has been subject to proceeds from a ROTH conversion. Such conversions would taint the account and this technique would become muddied because Canada does not recognize ROTH plans in the same context as "foreign retirement arrangements.? Furthermore. Canadian Tax Free Savings Accounts (T FSAs) and ROTHs are separate categories with another set of rules and guidelines for anyone wishing to move across the border. view IRA rollovers differently. Canada does not recognize ROTH lRAs. But, other options exist Transferring your 401K ls most bene?cial If you are over age 59.5. I. lick ti.- 1' imtat?i and to learn more What about the reverse, transferring from an to an Thus far we have only explored the mechanics of a person moving from the US to Canada but what solutions exist for a person moving from Canada to the Unfortunately. or LIRAs (locked-in plans) cannot be transferred to an Please also be aware that the place and timing of these transactions should be aligned with pre- and post-move planning that captures the realities of residency and ceasing of non- residency. Many aspects of the information contained herein can also be applicable to retirement arrangements from other countries like the United Kingdom. Transferring assets from a RRSP to a 401K or IRA RRSP 401K or Transfers are not possible. RRSP assets cannot be transferred to 401Ks or IRAs. The RRSP assets must instead remain in Canada but can be ACLFL-IM l? managed by a Canadian adviser who Is licensed in the US state in \vvhich you are resident in. xx. Click Here to view a larger version of this diagram NOTE: Disclaimer (as per Circular 230). To ensure compliance with the requirements imposed by the IRS. we inform you that any tax advice contained in our communication (including any attachments) was not intended or written to be used. and cannot be used. for the purpose of avoiding any tax penalty or (ii) promoting. marketing or recommending to another party any transaction or matter addressed herein. Our communication is limited to the conclusions speci?cally set forth herein and is based on the completeness and accuracy of the facts and assumptions as stated. Our advice may consider tax authorities that are subject to change. retroactively andior prospectively. Such changes could affect the validity of our advice. Our advice will not be updated for subsequent changes or modi?cations to applicable law and regulations. or to the judicial and administrative interpretations thereof. Copyright Paci?ca Partners Inc (August 1, 2012). Pacifica Partners - Capital Management Page 3 of 4 Navigating a Sea of Opportunity 06/03/2014 This report is for Information purposes only and is neither a solicitation for the purchase of securities nor an offer of securities. The Information contained in this report has been compiled trom sources we believe to be reliable. however. we make no guarantee. representation or warranty. expressed or implied. as to such inicrmation's accuracy or completeness. All opinions and estimates contained In this report. whether or not our own. are based on assumptions we believe to be reasonable as of the date of the report and are subject to change without notice. Past performance Is not indicative of future performance. Please note that. as at the date of this report. our ?rm may hold positions in some at the companies mentioned. 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Volumes of books were written on why the Japanese economic system should serve as a model for other countries. cum-mcmurr ?f or u" "?nk-unman- US E?c?cmomy - A Beacon of Hope One of the most glaring bene?ts of weak global equity markets over the last year has been the fact that dividends yields are at their most attractive levels in nearly 30 years. Click here for full story. ill-ribonu- The Politics of Gas Prices History has shown us that US presidential election cycles too often become ?xated on a single issue or phrase that de?nes the election. In the 1980 election it was Reagan's ?Are you better off than you were four years ago?? and in 1992 the Clinton campaign was able to de?ne the election around the phrase ?It's the economy stupid." Click here forfull story. 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