Canada 401k equivalent

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What’s the Difference Between an American 401(k) and a Canadian RRSP? (Updated 2021)

As an employer, you know the importance of offering valuable benefits to your employees. A pension plan can help you attract top talent by increasing total compensation and giving employees retirement security. This can help you gain a competitive advantage and increase employee loyalty and retention.


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If you’re an employer in the US who is planning toexpand into Canada or hire remote Canadian employees, you may want to offer your new Canadian workers a 401(k), especially if you offer this benefit to your American employees. What is a 401(k) in Canada? The Canadian equivalent of 401(k) is the Registered Retirement Savings Plan (RRSP). Here’s what you should know about the similarities and differences between the two.


The Canadian RRSP and the US 401(k) are both retirement plans. They give employees in Canada and the United States a tax-deferred way to invest and grow their retirement funds. Employees can choose a plan that enables them to invest in a diversified mix of investments, such as mutual funds, stocks, and GICs. Both plans have annual contribution limits.


While you can say that the 401(k) is the US equivalent to RRSP and vice versa, these plans are not identical.


Here’s how they differ:


  • 1. While an employee would be taxed a steep 10% for early withdrawals in the US, employees in Canada do not face early withdrawal penalties on a Canadian RRSP account. However, they will be taxed on their withdrawals.

  • 2. Unused RRSP contribution limitscan be carried forward to the next year whereas a 401(k) plan has a use-it-or-lose-it policy.

  • 3. The contribution amount limit is different for each plan. In Canada, theRRSP contribution limit is 18% of your earned income from the previous year. There is a maximum of $27,830 for the 2021 taxation year and $29,210 for the 2022 taxation year, not including RRSP contribution limits that are carried over from previous years. The annualcontribution limit in 2021 for an American 401(k) plan is $19,500 for everyone regardless of income.

  • 4. After the age of 50, American employees receive an additional $6,000 of contribution room, bringing the 2021 contribution maximum to $25,500 for those over 50. On the other hand, Canada’s RRSP does not allow employees to “catch up” with higher contribution levels after the age of 50.

  • 5. Americans cannot set up their own 401(k) accounts; they must be managed by an employer, whereas employees in Canada can and often do set up their own RRSPs. However, it is not mandatory for employers to match their contributions if employees choose to set up their own plans.


As you can see, there are many similarities as well as differences in the American 401(k) plan compared to the Canadian Registered Retirement Savings Plan (RRSP).


Setting up an RRSP for Canadian employees is not mandatory nor is matching contributions if an employee chooses to set up his/her own RRSP. However, it’s a valuable benefit to offer in order to attract and retain top talent in the country.


The process of setting up an RRSP matching employee program is easier than implementing a 401(k) program, but you will first need to have the various Canadian government accounts in place to process payroll deductions and remittances. This means you’ll need to register a business in Canada, apply for the various government accounts, and then set up the benefits plan you want to offer your Canadian workforce. This can be an onerous and time-consuming process. Fortunately, you can skip these steps bypartnering with a Canadian employer of record (EOR) like The Payroll Edge.


This allows you to use the EOR’s already-existing infrastructure in Canada to get started. Working with an EOR also enables you to remain in compliance with Canadian employment law and offer your Canadian workers excellent benefits package options including an RRSP employee matching program.Contact us to learn more!




U.S. vs. Canadian Retirement Plans: What’s the Equivalent to 401k or Roth IRA?

We Canadians share a lot in common with our neighbours to the south. We shop at many of the same stores, watch the same TV programs, we even follow the same sports teams sometimes. When it comes to personal finance, the programs we use to save for retirement also share many similarities.

What can be confusing, however, is that we have different names for everything, making the terminology hard to figure out. For example, Canadians have RRSPs, Americans have something called a Traditional IRA. But they also have something called a Roth IRA, which looks more like our very own Tax Free Savings Account (TFSA).

To help sort it all out, I’ve compiled a list of the registered retirement plans from both countries and matched each one with its closest counterpart. In addition, I’ve provided a summary of the similarities and differences of each. Consider this a crash course in cross-border retirement plans. Are you ready? Let’s dive in.

RRSP vs. Traditional IRA

Canadians have been able to enjoy tax-sheltered growth in RRSPs since the government-sponsored account was created way back in 1957. RRSPs provide 2 key benefits for Canadian investors; a tax deduction on contributions made to the plan, and tax-sheltered growth until the funds are withdrawn, presumably at retirement. The annual contribution limit is 18% of employment income earned during the previous tax year, up to a maximum of $27,230 (2020).

For Americans, the Traditional IRA enables individuals to save for retirement in a tax-sheltered account, while benefiting from a tax deduction on the contributions. The maximum annual contribution limit of $6000 is lower than that of an RRSP, and there are penalties for withdrawing early. If you don’t maximize your annual contribution in a Traditional IRA, the room is lost, whereas, with an RRSP, you can carry forward any unused contribution room indefinitely. Some of these limitations of the Traditional IRA are made up for in the 401K plan.

A Note About Spousal RRSPs/IRAs

In both Canada and the US, one can open a spousal version of an RRSP/IRA. The idea is to be able to income split after retirement, by accumulating funds in the name of the lower-income earner. In both plans, the account is held in the name of one spouse, with the other acting as the contributor. One key difference with a Spousal IRA is that withdrawals are always considered to be income for the account holder, whereas with a Spousal RRSP, there is an attribution rule which can cause withdrawals to be taxed as income for the contributor in certain situations.

How They Are Similar

  • Tax-sheltered accounts
  • Contributions are tax-deductible
  • Withdrawals are taxed as regular income

How They Are Different

  • Annual contribution limits are different; traditional IRA max is $6,000, $7000 for those over age 50 (401K plans have higher contribution limits, see below)
  • RRSPs allow for a lifetime overcontribution of $2000
  • Home Buyers Plan and Lifelong Learning Plan allow for funds to be borrowed from an RRSP tax-free, to help pay for the purchase of a home and post-secondary education.
  • As of December 2019, no maximum age for IRA contributions, RRSP is 71.

Group RRSPs vs. 401Ks

Group RRSP plans share many similarities with their US counterpart, the 401K, the first being that both are offered by employers, to employees. These are tax-sheltered accounts for which the contributions are tax-deductible. In many cases, the employer will provide a company match, to encourage participation in the plan.

The contribution limits of the plans differ. The annual 401K contribution limit is $19,000, much higher than the traditional IRA. With Group RRSPs, the plan holders’ contribution limit and their regular RRSP limit are one and the same. That is, 18% of the previous year’s employment income up to a maximum of $27,230 (2020). This limit must be shared between an individual’s personal and Group RRSP plan.

How They Are Similar

  • Contributions are tax-deductible
  • Tax-sheltered growth
  • Withdrawals are taxed as regular income
  • Both plans offer an employer match (in most cases)

How They Are Different

  • Annual contribution limits 401K: $19,000, Group RRSP and personal RRSP contribution room is shared. limit
  • Additional penalties for early withdrawal from a 401K
  • 401K unused contribution room is lost, Group RRSP, it’s carried forward
  • 401K contribution limit increases after age 50, to allow employees to “catch up”

TFSA vs. Roth IRA

For Canadians, TFSAs offer many of the same benefits that the Roth IRA does for Americans. Unlike RRSPs and Traditional IRAs, these plans accept deposits as after-tax income. In other words, contributions are not tax-deductible. That said, these are tax-sheltered accounts, so funds are allowed to grow tax-free as long as they are in their respective accounts.

Unused contribution room can be carried forward in a TFSA account but is lost under a Roth IRA. Another difference in regards to contributions – with a Roth IRA, the annual limit is shared with a Traditional IRA, meaning that an investor may need to choose which plan to make deposits to each year. The TFSA account is independent of other plans, like RRSPs. Generally speaking, TFSA accounts offer more flexibility when it comes to withdrawals. With a Roth IRA, you can be penalized for withdrawals if your plan is less than 5 years old, or you are under 59.5 years of age.

How They Are Similar

  • Tax-sheltered account
  • Contributions are not tax-deductible
  • No tax on withdrawals (Roth IRA subject to limitations, however)
  • Annual contribution limits are both $6000 (as of 2020)
  • No age limit when one must stop making contributions

How They Are Different

  • Unused contribution room is lost in a Roth IRA, can be carried forward in a TFSA
  • Contribution limit of Roth IRA is shared with Traditional IRA
  • Roth IRA has some withdrawal limitations not present in TFSA

Retirement in Canada vs. USA

It’s clear that Canadian retirement plans have a lot in common with their US equivalents. They also have their differences, which is why an RRSP is more than just a Canadian IRA, or 401K Canada, for that matter.

While it’s important to compare apples to apples, one of the advantages I see with Canadian retirement plans is having the ability to carry forward unused contribution room to future years. Also, being able to make withdrawals at any time without penalty is a great feature of TFSAs. Either way, whether you live in Canada or the US, make sure these tax-sheltered accounts are included in your plan for retirement.

Tom Drake

Tom Drake is the owner and head writer of the award-winning MapleMoney. With a career as a Financial Analyst and over a decade writing about personal finance, Tom has the knowledge to help you get control of your money and make it work for you.

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Tom Drake
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What's the Difference Between Retirement in Canada and America?

Retirement in Canada vs. America: An Overview

American and Canadian governments provide many of the same types of services to those planning for retirement and those who have retired. However, Canadian retirees find life after work to be much less stressful, as fears of running out of money are not as prevalent as they are in the United States. Such fears drive some American retirees to find ways to supplement their retirement incomes.

Key Takeaways

  • The Canadian Registered Retirement Savings Plans and Tax-Free Savings Account are akin to U.S. traditional and Roth IRAs.
  • Canadian retirement accounts have more generous contribution limits and fewer distribution limits than American accounts.
  • Canada's pension plan for seniors, Old Age Security, is funded by general tax revenues, while America's Social Security is funded by payroll taxes.
  • Canada's single-payer health insurance is available to citizens throughout their lives.
  • America's Medicare is eligible only to those 65 and older and covers a lower percentage of medical costs.
  • However, Canadians tend to pay more substantial income taxes than Americans.

A major benefit for Canadians is the publicly funded universal health care system, which provides them with essential medical services throughout their lives, as well as in retirement, without copays or deductibles.

In contrast, unless they are disabled or extremely low income, Americans have no single-payer insurance until they reach age 65, when they can qualify for Medicare. Even that is far from comprehensive. Medicare covers around 62% of healthcare costs.

A 2019 study by the Employee Benefit Research Institute estimates that some 65-year-old couples, without employer health coverage, will require approximately $363,000 to comfortably afford Medicare premiums and out-of-pocket medical expenses in retirement.

Key Differences: Retirement Savings Plans

When it comes to saving for retirement, Canada and America both offer individuals similar financial vehicles with similar tax advantages.

Contribution Limits: RRSP vs. Traditional IRA and 401(k)

In Canada, Registered Retirement Savings Plans (RRSPs) allow investors to receive a tax deduction on their yearly contributions. Money invested in the plan grows tax-deferred, which advances the benefits of compounded returns. Contributions can be made until the age of 71, and the government sets maximum limits on the amount that can be placed into an RRSP account (18% of a worker's pay, up to $27,230 for 2020).

According to the Canada Revenue Agency, that figure rises to $27,830 in 2021. Investors can contribute more, but additional sums over $2,000 will be hit with penalties.

Traditional IRAs

In the United States, traditional individual retirement account (IRA) contributions are more limited than their Canadian counterpart. The Internal Revenue Service (IRS) has set the maximum contribution for traditional IRAs at $6,000 per year for both 2020 and 2021, or the amount of your taxable compensation for the taxable year. People over the age of 50 can sock away an additional $1,000 per year in 2020 and 2021 as part of a catch-up contribution.

Also, IRAs carry a 10% tax penalty if funds are withdrawn before the taxpayer reaches the age of 59½; however, there is a special exemption at the age of 55 called the 72(t) that allow distributions without penalty.

Defined Contribution Plans

Defined contribution plans, which includeAmerican 401(k) plans, offered through an employer, are more comparable to RRSPs. The annual contribution limit for 2020 and 2021 is $19,500, and those who are aged 50 and over can contribute an additional $6,500 per year for a total of $26,000, including the catch-up contribution.

Using the February 2021 exchange rate, USD $26,500 equals slightly more than CAD $33,000. Despite the fact that RRSPs allow for greater contributions, wealthy Canadians tend to pay more taxes than their southern neighbors.

IRA Contribution Age and the SECURE Act

The Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed by President Trump in December 2019. The Act eliminates the maximum age for traditional IRA contributions, which was previously capped at 70½ years old.

However, Americans who turned 70½ years old in 2019 still needed to withdraw their required minimum distributions (RMDs) in 2020 or they incurred a hefty 50% penalty of their RMD. Those who turned 70½ years old in 2020 are not be required to withdraw RMDs until they are 72. The first withdrawal needs to occur before the following April 1, so individuals who turned 70½ in 2019 could have waited to withdraw their RMD until April 1, 2020. They were then required to take another RMD by the following Dec. 31, and every Dec. 31 thereafter.

Withdrawals and Taxes

Withdrawals from an RRSP can occur at any time but are classified as taxable income, which becomes subject to withholding taxes. In the year in which the taxpayer turns 71, the RRSP must be either cashed out or rolled over into an annuity or Registered Retirement Income Fund (RRIF).

For American taxpayers, traditional IRAs and 401(k)s are structured to provide the same sorts of benefits, whereby contributions are tax-deductible, and capital gains are tax-deferred. However, withdrawals or distributions are taxed at the person's income tax rate.

Canada's TFSA vs. America's Roth IRA

Canada's Tax-Free Savings Account (TFSA) is fairly similar to Roth IRAs in the United States. Both of these retirement-focused vehicles are funded with after-tax money, meaning there's no tax deduction in the year of the contribution. However, both accounts offer tax-free earnings growth, and withdrawals are not taxed.

Contribution Limits for TFSAs and Roth IRAs

Canadian residents over the age of 18 can contribute up to $6,000 to TFSAs in 2021, the same amount as in 2020; those who contributed in 2021 for the first time were eligible to deposit $75,500, provided they turned 18 in 2009 (the year the accounts originated).

The annual maximum contribution to a Roth IRA is $6,000 for 2020 and 2021 or $7,000 with the $1,000 catch-up contribution for those over the age of 50. Also, there is no limit on when one must stop making contributions and begin withdrawing money with either of these accounts.

Advantages of TFSAs Over Roth IRAs

TFSAs offer two significant advantages over Roth IRAs. Young Canadians saving for retirement are able to carry over their contributions to future years, while such an option is not available with Roth IRAs. For example, if a taxpayer is 35 years old and unable to contribute $6,000 into their account, due to an unforeseen outlay, next year the total allowable amount accumulates to $12,000. 

The contribution limits have changed year-to-year since the TFSA was first introduced in 2009, with the limit sometimes set at different ranges between $5,000 and $10,000; the current cumulative limit for 2021 is $75,500.

Secondly, while sums equivalent to contributions can be withdrawn at any time, distributions of earnings out of Roth IRAs must be classified as "qualified" in order to avoid taxes. Qualified distributions are those made after the account has been open for five years, and the taxpayer is either disabled or is over 59½ years old. Canada's plan does offer more flexibility in terms of providing benefits for those planning for retirement.

Key Differences: Government Pensions

Both the United States and Canada provide workers with a guaranteed income once they reach retirement age. However, these federal pension plans differ from each other in several ways.

Canada's Old Age Security vs. America's Social Security

Canada has a three-part system: Old Age Security (OAS), financed by Canadian tax dollars, provides benefits to eligible Canadians 65 years of age and older; the Canada Pension Plan (CPP), funded by payroll deductions (like Social Security in the United States), makes benefits available as early as age 60; and the Guaranteed Income Supplement (GIS) is available to the very poorest Canadians.

OAS provides benefits to eligible citizens 65 years of age and older. Although there are complex rules to determine the amount of the pension payment, typically, a person who has lived in Canada for 40 years, after turning 18, is qualified to receive the full payment (as of 2021) of $615.37 per month.

Additionally, Guaranteed Income Supplements ($553.28 or $919.12, dependent on marital status) and Allowances ($1,168.65) are provided for pensioners with an annual income of up to $44,688. The OSA implements a clawback provision, known as the OAS recovery or repayment, which means that high-income earners over the age of 65 are required to repay some or all of the OAS pension. This clawback is adjusted annually for inflation ad will vary by reported income.

Much like with Social Security, OAS beneficiaries who choose to delay receiving benefits can get higher payouts; currently, benefits can be delayed for up to five years, up to age 70. OAS benefits are considered taxable income and they carry certain payback provisions for high-income earners.

To subsidize universal healthcare and pensions, Canada imposes higher income taxes on its citizens than the United States does on its residents.

American Social Security, on the other hand, does not focus exclusively on providing retirement income but encompasses such additional areas as disability income, survivor benefits, and Medicare (to the extent that Medicare premiums are taken out of Social Security benefits). Social Security income tax issues are slightly more complex and depend on such factors as the recipient's marital status and whether or not income was generated from other sources; the information provided in the IRS Form SSA-1099 will determine the tax rate for the benefit.

Individuals are eligible to receive partial benefits upon turning 62 and full benefits ($3,148 per month is the maximum as of 2021) once they are 66 or 67, depending on the year of birth. Eligibility is determined through a credit system, whereby qualified recipients must obtain a minimum of 40 credits, and they can earn additional credits to increase their payments by delaying initial benefit payments up to age 70.

The Bottom Line

Generally, Canada's retirement programs are considered safer, as they are funded out of general tax revenues. There are continuous fears in the United States that the Social Security system, which is funded through payroll taxes on employee wages, will become bankrupt.

Moving your 401(k) to Canada

Transferring a 401(k) or IRA to Canada

Maintaining tax-deferred status

Does the plan have to move with the holder to maintain tax-deferred status? The short answer is no. Both the federal Income Tax Act (ITA) and the Canada-U.S. tax treaty provide for continued tax deferral of U.S.-based retirement plans for planholders living in Canada, just the same as if the planholder were living in the U.S.

Canadians who own Roth IRAs — the U.S. equivalent of a TFSA — must file a one-time election to defer tax on their plan balances.

Why move the plan to Canada?

Reasons may include:

  • consolidating investment management and advisory services to one country to simplify affairs, save money on professional fees and bring peace of mind;
  • mitigating currency risk and the impact of investment restrictions that may be imposed on non-residents; and
  • reducing exposure to U.S. estate tax, because U.S.-based retirement plans are considered U.S. situs assets for estate tax purposes. U.S. estate tax is assessed on value, not gain, at the same graduated rates that apply to U.S. persons.

Conditions to meet

The ITA contains special provisions allowing Canadian residents to transfer a U.S.-based retirement plan to an RRSP on a tax-deferred basis, without requiring RRSP contribution room, provided certain conditions are met:

  1. The amount is transferred as a lump sum.
  2. In the case of a 401(k) or other employer-sponsored plan, the amount relates to services rendered by the employee, or the employee’s spouse or common-law partner (or former spouse or common-law partner), while that person was a non-resident of Canada.
  3. The transferor is a Canadian resident for Canadian income tax purposes when the transfer to the RRSP is made, and typically is planning to remain in Canada permanently.
  4. The amount is fully taxable in Canada for the year of transfer, with an offsetting deduction for the amount transferred to the RRSP.
  5. To obtain the offsetting deduction for year of transfer, the RRSP contribution must occur within the same year or within 60 days after the end of the year of transfer from the U.S.-based plan.
  6. The transferred amount can be contributed to only an RRSP, not a spousal RRSP.
  7. As transfers to RRIFs aren’t allowed, the RRSP contribution can’t be later than Dec. 31 of the calendar year in which the client turns 71. As such, this strategy isn’t available to those over 71.

Amounts in respect of both employee and employer contributions to a 401(k) may be transferred to an RRSP under the conditions described above. Where contributions to the 401(k) were for services rendered while the employee was a resident of Canada, transfers to an RRSP aren’t normally allowed. This rule can catch employees living close to the border who commute to the United States for work off guard.

For IRAs, the transfer conditions above apply, with the following exceptions:

  1. Only amounts contributed by your client, their spouse or common-law partner (or former spouse or common-law partner) to the IRA can be transferred to their RRSP on a tax-deferred basis without requiring contribution room. Amounts contributed directly to an IRA by the employer would require contribution room.
  2. There’s no requirement for your client to have been a non-resident of Canada for their IRA contributions to be eligible for transfer to their RRSP.

Steps to transfer a U.S.-based retirement plan to an RRSP

Step 1: Make a lump-sum withdrawal from the U.S.-based retirement plan. The withdrawal would normally be considered U.S.-source income, subject to a 30% U.S. non-resident withholding tax.1 If the withdrawal is the client’s only U.S.-taxable transaction for the year and early withdrawal penalties don’t apply, the withholding tax will satisfy U.S. tax obligations and a U.S. tax return needn’t be filed.

If your client is under age 59½ on withdrawal, they may be subject to a 10% non-refundable early withdrawal penaltyThe U.S. plan administrator isn’t responsible for withholding this penalty. The client must file a 1040NR form to calculate and remit the penalty to the IRS.

Step 2: Contribute the Canadian-dollar equivalent of the gross U.S.-dollar lump-sum withdrawal (before withholding taxes and any penalties are applied) to the RRSP. The Canadian-dollar equivalent is calculated based on the exchange rate in effect on the date of transfer. This contribution must be made by the end of the normal RRSP contribution deadline. Plan amounts that don’t qualify under the conditions above may also be contributed provided RRSP contribution room is available.

Step 3: Report the Canadian-dollar equivalent of the gross U.S.-dollar lump-sum withdrawal as income on the Canadian income tax return (T1), as well as the offsetting deductible RRSP contribution. The amount contributed to the RRSP is reported as a “transfer” on Schedule 7 of the return, so as not to require contribution room. The client can offset their overall Canadian tax liability for the year by claiming a foreign tax credit in respect of U.S. tax paid, including the early withdrawal penalty, if incurred.

Note that while you can normally access a lower withholding tax rate (15%) by taking periodic payments from an IRA or 401(k) plan, you wouldn’t be able to contribute those amounts to the RRSP unless you had existing RRSP contribution room. If you inherited a plan from someone other than your spouse or common-law partner, any lump-sum transfer to the RRSP would also require RRSP contribution room. Similarly, contributing Roth IRA proceeds to an RRSP would require RRSP contribution room. A Roth IRA can’t be transferred to a TFSA and vice versa.

Clients should consult with the relinquishing institution and a tax specialist to determine the requirements to initiate foreign pension plan transfers.

Once the client initiates the transfer with the relinquishing institution, the receiving institution will typically require an application form with investment instructions and a statement from the source plan confirming the type of account the client wishes to transfer. An accompanying letter of direction explaining the details of what is intended may be helpful, particularly where the amount on the cheque is different from the plan statement provided.

Upon receipt of funds clearly indicated as foreign pension monies, the receiving institution will issue to the client a contribution receipt under section 60(j) of the ITA.

How is this strategy tax neutral?

Although a tax-deferred rollover from a U.S.-based plan to an RRSP is available, the U.S.-source withholding tax and potential early withdrawal penalties mean that only a portion of the initial lump-sum withdrawal will be available for an RRSP contribution in the year of transfer.

Therefore, if the client would like to transfer the full pre-tax amount in the year of transfer, they’ll need sufficient funds from other sources to top up the RRSP contribution.

If this isn’t done, some taxation in the year of transfer would normally occur.

Further, while U.S. withholding taxes and potential early withdrawal penalties are eligible to be claimed as a foreign tax credit when filing the Canadian tax return, sufficient Canadian income tax liability from other income sources is required to use the foreign tax credit generated by the withdrawal. Neither the deduction room generated by the transfer nor the foreign tax credit generated by the related U.S. tax liability can be carried forward.

What options are there for clients who don’t meet the requirements for a tax-neutral transfer? For starters, they can hold off on transfers until after age 59½ to avoid early withdrawal penalties. Spreading the transfer over more than one year or triggering sufficient taxable income in Canada in the year of transfer to make full use of foreign tax credits can also help make the transfer more tax-efficient.

Other considerations

Advisors should ask clients if their U.S. plans include after-tax contributions.

U.S. retirement plan contributions can be made with after-tax money. While the growth of these after-tax contributions are withdrawn on a taxable basis, the original contributions can be withdrawn tax-free.

Transferring such contributions to an RRSP moves after-tax money into an environment where it will be taxed upon withdrawal, and thus should be considered carefully.

With 401(k)s, the plan administrator tracks the after-tax and pre-tax contributions. With IRAs (including when 401(k)s are rolled over to IRAs), tracking is the individual’s responsibility.

Rebecca Hett, CPA, CGA, TEP, is vice-president, Tax, Retirement and Estate Planning at CI Investments.

1 Plan administrators are normally required to withhold 30% of the taxable amount, unless a tax treaty specifies a different rate. While the Canada-U.S. treaty specifies a 15% withholding tax rate for periodic pension payments, lump-sum withdrawals do not normally benefit from the lower 15% rate. In any event, IRS Form W-8Ben must be on file for a planholder to qualify for the lower treaty rate. Some administrators may withhold the lower rate on lump-sum withdrawals where this form is on file with the understanding that the lump sum is in respect of periodic pension payments. Check with plan administrators for their interpretation of this rule.


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