I am about to move to Canada in the next few months and I am closing down all my accounts in the US. What do you suggest I do with my 401K account?
Some websites suggest leaving the account as is till I am 59 but I don’t want to leave a 5 digit sum of money just like that. I am okay with paying the taxes and the penalty just to get the money back that I can reinvest in Canada.
What would be my best option here?
If you’re OK with paying taxes and penalty, you can withdraw it as a lump-sum and reinvest in Canada.
You may want to consider closing the account after moving to Canada and in new year. This way, the lump-sum amount is the only taxable income in US in that year and potentially lower the tax bracket.
Transferring a 401k / IRA to an RRSP in Canada
A 401k is an employer sponsored defined 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. Specifically, you will be able to transfer a 401k to a rollover IRA (employer permitting) and then transfer the IRA to a Canadian RRSP.
Found the above information online.