Canadian eligible for retirement plan in U.S.?

December 17, 2007 3:53 PM

My boyfriend is a Canadian citizen working in the United States on a TN visa. Is he eligible to enroll in his employer’s retirement plan?

If so, what are the limitations in terms of withdrawing those funds if he decided to move back to Canada to live/work? Are they transferrable?

The company he is with is smallish so HR was hazy on the policies. We’re having a tough time trying to find information on this so any input would be appreciated!

posted by zgg105 to Work & Money (1 answer total)

Yes, your boyfriend can contribute to the retirement plan, presumably a 401(k). Canada and the US has a tax treaty and the gains in a 401(k) and/or IRA continue to grow tax deferred until disbursement. You can then withdraw the money from Canada.

The easiest thing to do with the money is to roll the 401(k) over to an IRA before leaving the US, manage the IRA at arm's length using an online brokerage account, and withdraw the money only upon retirement. This is what I plan on doing.

You can roll a 401(k) over to an RRSP. However, you pay the 10% US tax penalty for early withdrawal from the 401(k).

Some random tidbits I received third-hand:

• Whether or not ex-employees can keep their 401(k) plan or must transfer its funds to another plan is not a legal requirement: it depends on the rules of the employer and investment company.
• Whether or not investment companies let non-residents have full access to accounts is not a legal requirement: it depends on the company’s rules.
• Neither the US nor Canada will tax the dividends accumulating in an IRA or 401(k) , as long as you just leave it sitting in there.
• If you take money from an IRA or 401(k) , you can put it into an RRSP and it will not count toward your RRSP limit, and you will get a tax deduction (like you would for a normal RRSP contribution)
• If you withdraw early from your IRA or 401(k) a little bit every year, while not a resident of the U.S., then you’d pay very little U.S. tax (but you would still pay the 10% early penalty), and if you put that money in an RRSP it would be tax-neutral in Canada for that year (since the deduction you get by contributing the money to the RRSP should cancel out the Canadian taxes on it).
• Unlike the U.S., Canada does not recognize the roll-over from a 401(k) to an IRA as a tax free event. In other words, if you roll-over your 401(k) into an IRA after you’ve established residency in Canada, the Canadian government will tax you as if you withdrew all that money from the 401(k) . So if you want to roll your 401(k) into an IRA, do it before you become a Canadian resident.

Caveat, I am not a financial professional. My advice is worth what you've paid for it. You should consult a real professional for real advice.
posted by crazycanuck at 4:26 PM on December 17, 2007