Asked
Looking for advice regarding my husband having an approximately $5,000.00 USD in a 401k through John Hancock from his time working in the States. He was there for 3 years on a T1 visa. What is the best way to move it to Canada without major penalties? Can we request it be moved to a RRSP? Better to just leave it there until his retirement age? He's 51.
Clint’s answer
Withdrawing a 401k or any portion of one will be taxed in Canada. It's much like an RRSP in that the growth while in the investment is tax sheltered (tax free), but once it is pulled, the withdrawn amount is added to your taxable income and taxed appropriately at the marginal rate.
The strategy for withdrawing these kinds of investments is when your taxable income is at a lower marginal rate (tax bracket).
There may be some withholding tax at the source which may be applied as foreign tax credits so you get dollar for dollar back as credits when you file your taxes, but if there is more tax taken off at the source than the taxes you would have paid in Canada, you would have to apply for relief to the IRS.
As far as transferring it into another registered account in Canada, there is a multi-step process that involves the American employer's approval as I understand it. One would have to get approval from the employer to transfer the 401k as a lump sum to an Individual Retirement Account (IRA), then have the financial institution you are registering your RRSP through apply to have the funds moved from the IRA to the RRSP. This would come with fees, I’m certain, so bottom line, all things being equal, the question would come down to how badly one wanted to have their money grow in Canada vs US.
May 6, 2025
From Ask Clint: real questions from a Canadian public finance forum, answered by Clint Cole. Names are changed. This is general information, not advice for your situation, and rules and dollar figures may have changed since Clint answered. Terms