What happens to my 401(k) and Roth IRA when I move back to Canada? Can I roll it into an RRSP?

On the ordinary practitioner read a 401(k) can follow you into an RRSP, through a deduction in ITA 60(j) you claim on your return, though no CRA statement confirms a 401(k) meets its pension-benefit limb. The amount lands in your income first and the deduction offsets it. Five conditions have to hold, the money has to reach the RRSP in the year you receive it or within 60 days after that year ends, and if you’re a nonresident alien by then, US tax comes off at source. Relief for that US tax runs through the ITA 126 credit, measured by the treaty rate where the treaty sets one. A Roth IRA generally doesn’t travel that route.

Can I actually roll my 401(k) into an RRSP when I move back to Canada?

Usually yes, though it works as a deduction rather than a rollover, and no CRA statement settles that a 401(k) fits. You take a distribution, it lands in your Canadian income, and ITA 60(j) lets you deduct an offsetting amount that you designate on your Canadian return. Five conditions in 60(j)(i) have to hold together, and the one people drop is that the benefit has to be attributable to services rendered in a period throughout which you weren’t resident in Canada. Miss any of the five and the deduction isn’t there, while the distribution stays in your income anyway.

• It’s a superannuation or pension benefit. That term is defined inclusively and reaches any amount received out of a superannuation or pension fund or plan (ITA 248(1)).
• It isn’t part of a series of periodic payments, which is the limb that collides with the treaty rate further down this page.
• It’s payable out of a pension plan that isn’t a Canadian registered pension plan.
• It’s attributable to services rendered in a period throughout which that person wasn’t resident in Canada.
• It’s included in your income for the year under ITA 56(1)(a)(i).

“(i) a superannuation or pension benefit (other than any amount in respect of the benefit that is deducted in computing the taxable income of the taxpayer for a taxation year because of subparagraph 110(1)(f)(i) or a benefit that is part of a series of periodic payments) payable out of or under a pension plan that is not a registered pension plan, attributable to services rendered by the taxpayer or a spouse or common-law partner or former spouse or common-law partner of the taxpayer in a period throughout which that person was not resident in Canada, and included in computing the income of the taxpayer for the year because of subparagraph 56(1)(a)(i)” (ITA 60(j)(i))

An ordinary 401(k) balance, meaning one that isn’t sitting in a deemed IRA of the kind IRC 408(q) allows a plan to carry, has to run through that limb, because the other door in 60(j) is shut to it. Section 60.01 creates an eligible amount out of a payment from a foreign retirement arrangement, and that term is prescribed: Regulation 6803 points it at plans to which subsection 408(a), (b) or (h) of the US Internal Revenue Code applies. Those three define an individual retirement account, an individual retirement annuity and a custodial account treated as one (IRC 408), while a 401(k) is a cash or deferred arrangement inside a plan qualified under IRC 401(a). CRA reads the same door the same way, listing what can be transferred as “amounts received from foreign retirement arrangements, such as United States Individual Retirement Accounts (IRAs)” (T4040). So 60(j)(i) is the door an ordinary 401(k) balance has to fit. The deemed-IRA exception is why that word is there: IRC 408(q) lets a qualified employer plan carry a separate account that “shall be treated for purposes of this title in the same manner as an individual retirement plan and not as a qualified employer plan”, so a balance in one of those is on the IRA side of the split rather than this one. Worth asking your plan whether it has one before you assume which door you’re at.

Whether your particular 401(k) fits is the fact that decides the whole thing, and the statute doesn’t settle it on its face. Both governments call a 401(k) arrangement a qualifying retirement plan for the purposes of Article XVIII(8) to (14), the cross-border contribution rules (Annex B to the Fifth Protocol, item 10(b), which opens “For purposes of paragraph 15 of Article XVIII”, and Article XVIII(15), which opens “For purposes of paragraphs 8 to 14”; CRA’s guide T4040 repeats the same treaty-scoped definition in plain words). That’s corroboration and it’s the ordinary practitioner read. It isn’t an ITA determination, because a definition written for those treaty paragraphs doesn’t decide a 60(j)(i) characterization, and we’ve found no CRA statement saying a 401(k) qualifies under 60(j). Even inside its own narrow scope that definition excludes “an individual arrangement in respect of which the individual’s employer has no involvement”, so an arrangement with no employer behind it doesn’t get even the corroboration. None of that is a 60(j) test either way.

The service condition is the other one worth reading twice. It doesn’t ask whether you worked in the US. It asks whether you were outside Canadian tax residence throughout the period in which the benefit was earned. Someone who commuted from Windsor to Detroit and stayed a Canadian resident the whole time fails that limb on that service, even where the plan and the payment shape are fine. Where a career straddles both, don’t assume the good years can be carved out of the bad. The words “such part” in 60(j) attach to what you designate and actually pay into the plan, and limb (i) tests whether the benefit is attributable to services rendered “in a period throughout which” you weren’t resident in Canada. We haven’t found a source that splits a single benefit across resident and non-resident service, so that’s an assessment question rather than something the section answers. If you’re unsure which side of the line your years fall on, the order the Canadian residency tests actually run in is the same machinery, written for someone leaving Canada rather than returning.

What’s the deadline to get the money into the RRSP?

The contribution has to be paid in the year you receive the distribution or within 60 days after the end of that year, and ITA 60(j)(iv) caps the deduction at what you actually paid in by then. So it isn’t a flat 60 days from the payment. The window keys to the year of receipt and runs anywhere from about two months to fourteen depending on when in that year the money lands, and that year can differ from the year you became a Canadian resident and from the year you stopped being a US resident. On the face of the provision there’s no extension.

“(iv) 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” (ITA 60(j)(iv))

CRA says the same thing in plain words in the Chart 8 preamble to guide T4040: “To deduct an amount, you have to make the contributions to a plan or fund in the year you receive the amount or no later than 60 days after the end of that year.” A transfer that misses that window is an ordinary distribution that stayed taxable.

The receiving plan doesn’t have to be an RRSP. The same subparagraph counts a contribution to a registered pension plan for your benefit, at clause (A), and a payment to a registered retirement income fund under which you’re the annuitant, at clause (C). The RRSP is the usual choice, so it’s the one this page prices.

The RRSP leg carries an age limit. A plan can’t provide for maturity after the end of the year the annuitant turns 71, and can’t provide for premiums after maturity (ITA 146(2)(b.3) and (b.4)). The CRA states the same age limit for RRSP transfers in plain words: “If you transfer the amount to your RRSP, you must be 71 or younger at the end of the year in which you transfer the funds” (CRA, Transferring). That bar keys to the end of the calendar year you turn 71, and to none of the other dates on this page.

What does the IRS take before the money ever gets to Canada?

Plan on the US default rate. A 60(j) transfer needs a benefit that isn’t part of a series of periodic payments, and separately, the treaty’s 15% cap reaches only a periodic pension payment. We haven’t found a source making the two exact complements, so don’t read a payment outside one as automatically inside the other. The US default on this income paid to a nonresident alien is 30% under IRC 871(a)(1), withheld at source by the payer under IRC 1441(a), and that keys to your US residence status when the payment is made.

“deduct and withhold from such items a tax equal to 30 percent thereof” (IRC 1441(a), on income of a nonresident alien individual from sources within the United States taxed at 30% under IRC 871(a)(1))

One thing worth knowing about the treaty term, because it cuts the other way from what you’d guess. Canada did legislate a definition of “periodic pension payment” for its tax conventions, in section 5 of the Income Tax Conventions Interpretation Act, and it works by exclusion, carving lump sums, commutations and oversized RRIF withdrawals out of pension payments. It opens “in respect of payments that arise in Canada”, though, so on its own words it doesn’t reach a payment out of a US plan. The ITA’s own “series of periodic payments” in 60(j)(i) carries no definition at all. So there is a definition, it just isn’t one that decides your payment.

The cap itself sits in Article XVIII(2)(a), which limits the source-country tax to 15% of the gross amount where a resident of the other state is the beneficial owner of a periodic pension payment. How that rate analysis actually plays out, including the W-8BEN and the recovery route if too much comes off, belongs to what the IRS withholds on a US retirement account once you’re a Canadian resident, and when the treaty’s 15% cap reaches. Read that before you pick a payment shape.

Under 59½ there’s another layer. IRC 72(t)(1) adds 10% of the includible portion on top of the ordinary tax, and 72(t)(2)(A) carries exceptions, among them a distribution made to an employee after separation from service after attaining age 55, and a series of substantially equal periodic payments. Whether one of those fits you is a fact question, and the second sits awkwardly against the payment shape 60(j) needs.

Relief for the US tax runs through ITA 126. ITA 126(1) gives a credit for non-business-income tax paid to another country, capped by a proportion tied to your income from sources in that country for the year. Two things sit in front of that cap.

The first is what the credit runs on. “Non-business-income tax” is a defined term and the definition is in ITA 126(7): income or profits tax paid to that country, less business-income tax, less anything deductible under subsection 20(11) or deducted under 20(12), then a further list of exclusions, among them tax “that would not have been payable had the taxpayer not been a citizen of that country”. CRA’s route into that is that a tax named in a treaty’s double-tax article counts as an income or profits tax, and its example is the US taxes in Article XXIV(2)(a), which reaches “Income tax paid or accrued to the United States on profits, income or gains arising in the United States” (Folio S5-F2-C1, paragraphs 1.8 and 1.20). The characterization of a US gross-basis withholding under that definition is a question for your preparer on your facts.

“non-business-income tax paid by a taxpayer for a taxation year to the government of a country other than Canada means, subject to subsections (4.1) to (4.2), the portion of any income or profits tax paid by the taxpayer for the year to the government of that country that (a) was not included in computing the taxpayer’s business-income tax for the year in respect of any business carried on by the taxpayer in any country other than Canada, (b) was not deductible by virtue of subsection 20(11) in computing the taxpayer’s income for the year, and (c) was not deducted by virtue of subsection 20(12) in computing the taxpayer’s income for the year” (ITA 126(7))

The second is the rate you were charged, and that’s where the money actually moves. This page doesn’t resolve whether your payment is periodic. If it is, the treaty caps the US tax at 15%, and CRA’s position is that anything withheld above a treaty rate was never foreign tax paid: “such excess is not considered to be foreign tax paid for the year for purposes of the foreign tax credit. The maximum credit allowed will be determined on the basis of the treaty rate and the taxpayer should seek a refund of the excess withholding tax from the foreign revenue authorities” (Folio S5-F2-C1, paragraph 1.35). On those facts half of a 30% withholding is money you chase the IRS for rather than credit against Canadian tax.

Then there’s the limit itself. What we won’t do here is tell you what it works out to once a 60(j) deduction pulls the same amount back out of your Canadian income. The Act does speak to one piece of it. ITA 4(3)(a) names section 126 and then excludes deductions permitted by paragraphs 60(b) to (o), which is where 60(j) sits, from applying to a particular source or place.

“(3) In applying subsection 4(1) for the purposes of subsections 104(22) and 104(22.1) and sections 115 and 126, (a) subject to paragraph (b), all deductions permitted in computing a taxpayer’s income for a taxation year for the purposes of this Part, except any deduction permitted by any of paragraphs 60(b) to (o), (p), (r) and (v) to (z), apply either wholly or in part to a particular source or to sources in a particular place” (ITA 4(3))

Getting from that to a number is a further step we haven’t locked a source for, because the 126(1)(b) limit has both a fraction tied to income from sources in the other country and a “tax for the year otherwise payable” that it multiplies, and a deduction moves those two separately. So model it before the money goes anywhere, and don’t assume the inclusion, the deduction and the credit quietly cancel out.

Does the transfer use up my RRSP contribution room?

No, provided you actually designate it under 60(j) and deduct it. ITA 146(5)(a)(ii) carves a premium designated for 60(j) purposes out of the ordinary RRSP deduction that your deduction limit caps, and ITA 204.2(1.2) keeps a premium deducted under 60(j) out of undeducted RRSP premiums, which is the figure the over-contribution tax is charged on. Both carve-outs key to what’s on your return. If the amount doesn’t get designated and deducted, it sits there as an ordinary contribution.

1. The broker issues an ordinary RRSP contribution receipt, because nobody told them otherwise.
2. Nobody designates the amount under 60(j)(iii) on the return, so it isn’t deducted under 60(j).
3. It therefore stays inside the undeducted RRSP premiums figure in ITA 204.2(1.2).
4. If that figure exceeds your unused deduction room, the $2,000 cushion and the other elements of the formula in ITA 204.2(1.1), you have a cumulative excess amount.
5. ITA 204.1(2.1) then charges 1% of that cumulative excess amount for each month it’s outstanding.

Notice where the trap actually sits. Neither carve-out keys to what the broker writes on the receipt. Both key to your own tax treatment, one to the amount being designated for 60(j) purposes and the other to it being deducted under 60(j). So tell the broker it’s a 60(j) transfer when you make the contribution, and make sure the return designates it, because the receipt on its own doesn’t do the job either way.

There is a waiver and it’s discretionary. ITA 204.1(4) lets the Minister waive the tax where the individual establishes that the excess arose as a consequence of reasonable error and that reasonable steps are being taken to eliminate it. “May waive” is the operative phrase, so it’s relief you apply for rather than a fix you count on.

Can I move my Roth IRA into an RRSP too?

Generally no. ITA 60(j) has two doors, and only one of them closes on the statute’s own words. The IRA door runs through section 60.01, which needs a payment included in your Canadian income because of clause 56(1)(a)(i)(C.1), and that clause leaves out an amount that wouldn’t be subject to income taxation in the US if you were resident there. A qualified Roth distribution isn’t includible in US gross income, so in the ordinary case there’s no clause (C.1) inclusion, no eligible amount, and nothing to designate.

“(C.1) the amount of any payment out of or under a foreign retirement arrangement established under the laws of a country, except to the extent that the amount would not, if the taxpayer were resident in the country, be subject to income taxation in the country” (ITA 56(1)(a)(i)(C.1))

“Any qualified distribution from a Roth IRA shall not be includible in gross income.” (IRC 408A(d)(1))

That reasoning holds whether or not a Roth counts as a prescribed foreign retirement arrangement, which is an unsettled question this page deliberately leaves alone. The other door, 60(j)(i), is written around an employer pension benefit tied to service performed while the person wasn’t a Canadian resident, and a Roth funded by your own contributions doesn’t present that shape. Read that second leg as how the paragraph is written rather than as a rule the Act states in those words. A non-qualified Roth distribution is a different question again, since its earnings are US-taxable, which reopens the clause (C.1) analysis on that portion. We don’t have a source that settles it, so it goes to the assessment rather than into a rule here.

What actually matters for a Roth on the way back is a different pair of facts. The Article XVIII(7) election defers Canadian tax on income accrued in the plan and not distributed, until a distribution is made (Fifth Protocol, Article 13(2)). Deferral of tax on undistributed accruals is all that paragraph does; what keeps a distribution itself out of Canadian income runs through Article XVIII(1), which this page doesn’t take up. A separate paragraph handles contributions. From the time a contribution is made to the Roth by or for the benefit of a resident of Canada, the Roth stops being a pension for the purposes of Article XVIII, to the extent of accretions from that time (Article XVIII(3)(b)). It’s a split rather than a whole-account loss. What that does to a paragraph 7 election is a further step, and it isn’t one the text takes for you: paragraph 7 doesn’t use the defined term “pensions” at all, it keys to an arrangement operated exclusively to provide pension or employee benefits. The full treatment, including what the CRA counts as a contribution and what has to go in the election letter, is on what actually keeps a Roth tax-free once you’re back, and the one contribution that breaks it.

What if I just leave the 401(k) where it is?

Nothing is distributed, so there’s nothing to include in Canadian income under ITA 56(1)(a)(i), nothing to deduct under 60(j), and no US withholding to trigger. That’s those three provisions only. Whether income accruing inside the plan is taxable in Canada year by year is the Article XVIII(7) question, and that paragraph reaches any arrangement resident and generally tax-exempt in the other country and run exclusively for pension or employee benefits, so it isn’t Roth-only. Leaving it keeps the 60(j) option open while the conditions hold, and its RRSP leg closes at the end of the year you turn 71.

The question	A. Move it into an RRSP under 60(j)	B. Leave it in the US 401(k)	C. Take the cash and keep it
What the US takes when the money comes out	A distribution has to happen, so the US default of 30% under IRC 871(a)(1) and 1441(a) can apply to a non-periodic payment made to a nonresident alien; the treaty’s 15% cap reaches only a periodic pension payment; relief for the US tax runs through the separate ITA 126(1) credit, which is measured by the treaty rate, so CRA treats anything withheld above that rate as an IRS refund claim rather than a Canadian credit	No distribution, so nothing is taken now and there’s nothing to credit yet; the same rate question comes back when the money does come out	Same as column A, on the same conditions and through the same ITA 126(1) credit measured by the treaty rate, because this route also needs a distribution
Does it land in Canadian income	Yes, under ITA 56(1)(a)(i), for the year the payment is received	Not while the money sits in the plan and no payment is received	Yes, under the same provision, for the year the payment is received
Is there an offsetting deduction	Yes under ITA 60(j), but only where all five conditions in 60(j)(i) hold and the amount is designated on the return, and no CRA statement confirms a 401(k) meets the pension-benefit limb	Not applicable	No. Nothing is paid into a registered plan here, so there’s nothing that can be designated
Does it use RRSP contribution room	No, per ITA 146(5)(a)(ii) and 204.2(1.2), but only to the extent it’s actually designated and deducted under 60(j)	Not applicable	Not applicable
The deadline	Paid into the RRSP in the year received or within 60 days after that year ends, ITA 60(j)(iv), so anywhere from about two months to fourteen depending on when in the year it arrives, with no extension on the face of the provision	None while nothing is distributed	None
Where it goes wrong	The amount isn’t designated, so the room carve-out doesn’t apply and a cumulative excess can attract 1% a month under ITA 204.1(2.1); it also fails where the service was rendered while the person was a Canadian resident, or where you’re past the age-71 RRSP bar; and because this route needs a distribution, under 59½ the IRC 72(t) 10% is in play here too unless a 72(t)(2) exception fits	Nothing today, though the same decision returns whenever a distribution is made, including the IRC 72(t) 10% if that happens before 59½ and no 72(t)(2) exception fits, and the RRSP leg closes at the end of the year you turn 71	Under 59½ the IRC 72(t) 10% can apply unless a 72(t)(2) exception fits

The table runs the same money three ways under one set of facts: same person, same 401(k), same amount, so the three columns compare.

Leaving it isn’t a permanent answer, since the account keeps running under US rules and the same three routes come back the day you want the money. If you’re reading this from the other side of the move, the same decision in the other direction, drawing down an RRSP once you live in the US, is the mirror page, written for a US resident holding a Canadian plan.

What should I do next?

Pin down three dates before anything moves: the day you became a Canadian resident, the day you stopped being a US resident, and the day a distribution would actually be paid. That last one starts the contribution window, which closes 60 days after the end of the year the payment is received, so it’s longer than 60 days. Then check whether the service behind the plan was performed while you were outside Canadian tax residence, and price the funding gap, because the deduction only reaches what you put in.

Settle any of that before you call the custodian. The distribution is one-way.

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.