Thanks for the wonderful post @panditji , did you complete step 1 (convert 401K to IRA) while residing in US, or after your move to Canada ?
I did all the steps after moving to Canada.
Great post, thanks @panditji .
Quick question - did you start the RRSP account in your first year in Canada? I read on lot of posts that your RRSP contributions are determined after you file your first tax returns in Canada.
Jai Shri Ram and thank you Akshay.
Yes I did start my RRSP account in my first year in Canada. You’re right that the RRSP contribution room only starts after you’ve filed your first tax return. However as I’ve explained in the post I didn’t make any RRSP contributions per se, I have essentially done a transfer which creates it’s own separate RRSP room. You absolutely shouldn’t be making RRSP contributions in your first year as a tax resident.
Thanks @panditji,
I moved from US to Canada in Jul 2021. I started contributing to my employer sponsored Group RRSP 5% with equal match from my employer. Am I missing something that I shouldn’t contribute anything to RRSP in 2021 being my 1st year in Canada?
What are the cons of contributing to RRSP when there is a employer match?
I believe that this topic has been discussed here - Contributing to employer group RRSP the year you arrive in Canada
@panditji thanks for the detailed post about moving funds from 401K to RRSP.
Do you know what can one do if they are not able to deposit the full amount into an RRSP that was withdrawn from the 401K account?
Jai Shri Ram @sysout, that’s not a very good idea tax wise.
If you don’t contribute the entire amount, then you will lose the contribution room and be taxed on the portion of your income that you didn’t contribute to the RRSP in Canada.
The general idea here is that your withdrawal is first added to your taxable income and then you get a credit for the amount that you contribute if you contribute less than your 401k withdrawal then the problem is that you pay taxes on the amount that you don’t contribute back.
@panditji Thanks for your prompt response!
Yeah I totally agree with you!
The situation that I’m in is, I withdrew from my 401K at the start of this year and Fidelity withheld I think 30% of it. I transferred over that money to my Canadian Account (not a US dollar account) and had to use for personal reasons. Now I’m in a state where I don’t have enough money saved up in my Canadian account to contribute to RRSP to match the 401K withdrawal amount. I can contribute to the RRSP about 50% of it. Just wanted to know that, if I’m ok to loose the rest of the contribution room, can I still do the partial deposit to RRSP and file taxes accordingly?
In that case, I think it’s best to contribute as much of it as you can. You have 60 days next year to contribute to the RRSP, so you have until Feb 2022 to make the contribution (just incase there is an end of year bonus or some other money stream coming in between now and then). Another option would be to use a line of credit if one is available at preferential terms (borrowing to invest is in general risky and not something that I personally advice but depending on the amounts in question, the tax rebate may be worth paying interest especially if you can pay the balance and interest down fairly quickly)
So yeah, given your circumstances contribute as much of it as you can and unfortunately write off whatever you can’t.
Ohh I didn’t know I had until Feb 2022 to make the contribution to my RRSP. I was working with the assumption that I had only till December 31. But having that extra time might me help figure out some
extra cash availability and minimize the tax loss.
Really really appreciate your quick responses and ideas! 
Thanks a lot for your help!!!
Sure, happy to help. Mandatory disclaimer around this not being tax advice etc applies.
I recommend reading Sec 60 (j) of the income tax act which is the authority for this type of transfer. It’s surprisingly clear and easy to read and understand. I’ve highlighted the relevant section, if you do contribute after the year and within 60 days be sure to tell your broker to designate the contribution for the year 2021.
(iii) does not exceed the total of all amounts each of which is an amount paid by the taxpayer in the year or within 60 days after the end of the year in respect of the amount so designatedJai Shri Ram Panditji…
I tried filing tax as non resident in taxact for 2021 as i was in US only for 1 day in 2021 so i am non resident alien as per substantial presence test.
But to my surprise taxact is asking for a huge taxes to be paid as non resident even when my employer already deducted federal tax, social security tax, medicare tax and state tax in each paycheck…
looks like social security tax, medicare tax is not counted as tax by taxact for NR so it is asking huge federal tax to pay as no standard deduction or itemized deduction apply here as NR
For state tax, it is refunding about 15% of the taxes… i thought it would refund 100% state as didn’t live there…
Also, hsa contribution, medical premium and any 401k contribution seem to be calculated for tax as well so it was waste to put in hsa and to pay medical for 2021 if i have to still pay tax on that amount
…
Can you suggest if all this looks correct?
or Should i try any other tool or agent to file US tax as non resident ?
thanks.
Jai Shri Ram, I don’t really have an expertise in this matter but it does seem odd as to why you would have a significant amount of tax withheld if you were in USA for only 1 day.
Did you tell your employer after you moved out of America or did they assume that you were a US resident and continued to withhold and remit State taxes after you were no longer a resident. The thing with most states I’m guessing is that they only expect payroll taxes to be remitted, there is no refund for not being a resident. There are Dual Taxation avoidance treaties between states like NY and NJ so you don’t get an unfair tax treatment but afaik there are none with individual states and foreign countries.
It’s definitely worth discussing with a tax professional.
However overall this should resolve in a tax neutral situation for you when you file your Canadian taxes (assuming you had an adequate tax liability in Canada), you should report all the income in your Canadian Tax return as well as claim a tax credit for whatever State and US Federal tax that was deducted (and whatever you pay in addition to what was deducted). So you’ll just end up getting a bigger refund from the CRA. Do keep your US tax statements and proof of additional payment handy as CRA may very well ask you for them during a review of your tax return or an audit (They did a review of my Foreign income and Tax credits and after I shared the US documents they did a minor adjustment due to which I had to return a couple of hundred dollars of the refund back. I think they said that the 401k contributions should also be added to the income whereas the US Tax return doesn’t add them up as income)
Great points, Panditji. To be safe, I would request the Federal tax return transcripts from IRS and keep them handy. I’ve had to submit them for the past 2 years to CRA, only then did CRA approve any credit I claimed for income tax withheld in the US.
Thanks for detailed info…
While filing as NR in taxact, during the state tax it asks this:
Were you a full-year resident, part-year resident or nonresident for the year 2021?
I selected obviously nonresident as answer to this.
then it asked:
Enter your state or country of residence during the period non-residence.
State of residency
Country of residency
For state i selected “none selected” as only US states are there.
For country, i selected Canada.
Now below is where i need the help with this:
As a Part-Year or Nonresident of Statename you can apportion your Statename tax by the percentage of your total income that is assignable to statename.
### Wages, salaries, tips, and other compensation
It shows total wages here taken from W2. It asks here to assign portion of total income to the state.
So my question is:
-
Should I assign 0 income to state here as i was non-resident of state for entire year?
But my payslips had address of this state. If i put 0 then it is refunding me full state tax which withheld/deducted from payslips. This is good as anyhow i will be paying state tax to Canadian state with my Canada tax return. -
Should I assign full amount to state?
If i do this then it is refunding about 800+ amount from state tax and keeping other about 4800-5000 as paid to state… So when i file canadian tax return then i can claim it as foriegn tax credit probably…
Please suggest.
@panditji
Ram Ram panditji.
Can you look into my questions above and guide some more please.
thanks.
Jai Shri Ram @srhere
I’m not sure about these specific questions.
I think the main discrepancy in your case is that your tax slips have your US address on them, presumably because your employer didn’t update it correctly or you didn’t tell them. Depending on what state this is, it’s best to consult with someone with more of an expertise than I.
If I was filling this form, I would assign the full amount to the state (assuming that aligns with your tax documents) and then claim a foreign tax credit with the Canadian tax return. But if the CRA looks closer at this and asks you why you paid state tax when you were a Canadian resident (and tax resident), that I’m not sure how to resolve (it’s unlikely that they’ll comb in so deep so you should most likely be fine).
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Thanks for your advice earlier on about moving funds from 401K to RRSP. I’m filing my taxes for US and using TaxAct to file my 1040NR. I got a 1042-S from Fidelity and after I fill in those details in TaxAct, it says that I’ll be getting all of the 30% withheld amount returned to me. What is even more surprising is that, TaxAct is not accounting for the 401K 10% early withdrawal fee. Any idea what I could be doing wrong?
Background:
I moved from US to Canada in 2019 and made the 401K withdrawal in 2021. I didn’t have any other income in the US to report apart from the early withdrawal.
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