I am a Canadian Citizen and was a resident of the US for 11 years. I moved back to Canada recently and am working in Canada. I want to move my 401k to RRSP in Canada. Is this possible? What costs or taxes, if any, can I expect?
You can transfer a 401k to an IRA and then to an RRSP under the following conditions:
- You must have been a resident of the U.S. when the contributions to the plan were made
- The withdrawal must be a lump sum payment
- The withdrawal must be taxable in the U.S.
The IRA withdrawal will be viewed as a transfer only from Canada's perspective. The U.S. will still view it as an early withdrawal and impose penalty taxes, but you may be able to recover part of the taxes paid to the U.S. from Canada.
This method works if you wait until entering Canada and becoming a resident before making the IRA to RRSP transfer. You include the withdrawal in income on the Canadian tax return and claim the transfer into your RRSP, resulting in no additional tax liability to Canada. You then claim foreign tax credits on the Canadian return for the taxes paid to the U.S. on that income, thereby recovering some or all of the U.S. tax from Canada (Ref: Section 126 of the Income Tax Act).