Invest in 401K OR NOT?
Canadian moving to US for job soon, wondering if I should contribute to 401k or not, as I might move back to Canada after a few year. Any advice?
Invest at least up to the match. Whether to max it depends on specific tax treatment of the 401k with Canada
Close your eyes and invest. There is nothing you have to lose, everything to gain. Even if you are moving back to Canada, you can still withdraw the money from your 401k.
But wont uncle sam take like half of it if you do that before you’re a really old man?
For sure invest . Uncle Sam will just tax it if you don’t
Put just enough money in 401k to get the employer’s match. And if provided, make your portion of contribution 401k Roth so the taxes are paid upfront. The company portion is always traditional 401k. Then right before going back to Canada, roll over all your 401k into IRA Roth. You want to the rollover in a year with the lowest US income so the tax penalties on the traditional 401k are minimum. Canada does not recognize 401k as a retirement plan. But it does recognize IRA as one. Hence the rollover before you go back.
Don't you have to typically rollover from 401k to either IRA or ROTH IRA once you leave your current employer? And within Canada if you want to defer taxes on whichever IRA you have, you need to do by writing to CRA and electing for that.
Rollover is optional, not mandatory. The key thing is everything should be in Roth IRA before moving back to Canada. Converting traditional 401k to Roth IRA isn’t straightforward and there’s taxes to be paid. But you’re better off doing that while still in the US. Serbinski’s tax forum is a good place to find out more info about the paperwork needed for CRA.
I am making the same move soon. Would be interested to know as well. What do we do with our RRSPs then?