Principal Issues: Can the taxpayers transfer amounts from a US 401(k) plan to an RRSP? If not, why?
Position: Not in this case. They are over 69 years of age.
Reasons: An RRSP must mature before the end of the year in which the annuitant becomes 69. Once an RRSP has matured it cannot accept any more contributions (and must begin paying benefits). In the present situation, both taxpayers are over 69 years of age. They therefore cannot transfer (contribute) the amounts accumulated in their 401(k) plans to an RRSP. The taxpayers may have RRIFs instead of RRSPs. However, RRIFs are also precluded from receiving transfers of any amounts from 401(k) plans. RRIFs were intended to provide a means of paying retiring benefits that are accumulated in registered pension plans and RRSPs upon the maturity of those plans and were not intended to accept direct contributions or transfers from unregistered arrangements such as foreign pensions.
Signed on March 16, 2005
The Honourable Paul DeVillers, P.C., M.P.
Simcoe North
55 Nottawasaga Street
Orillia ON L3V 3J5
Dear Colleague:
Thank you for your letter of December 10, 2004, regarding your constituents, XXXXXXXXXX, about their wish to transfer funds from their American 401(k) plans to their Canadian registered retirement savings plans (RRSPs).
The provisions of the Income Tax Act related to saving for retirement are designed to assist residents of Canada to put away money for their retirement on a tax-assisted basis through their participation in Canadian registered pension plans and through contributions to RRSPs made during their working years to age 69. The provisions allow these savings to be transferred between different registered arrangements but only up to age 69, except in limited circumstances such as when an RRSP is replaced by a registered retirement income fund (RRIF).
The provisions recognize that some taxpayers may accumulate retirement savings in foreign pension plans during their working years when they are not residents of Canada and cannot take advantage of the tax-assisted savings provided under registered pensions and RRSPs. Accordingly, provisions were designed to allow these taxpayers to transfer their savings from their foreign plans into Canadian registered pensions or unmatured RRSPs. However, I must confirm that there is no provision to allow for the transfer of these amounts to either a matured RRSP or a RRIF.
In this particular situation, XXXXXXXXXX are both over age 69 so they cannot hold an unmatured RRSP. They are therefore unable to make the 401(k) plan transfer that is provided for in the Act.
The CRA is responsible for administering the legislation as enacted by Parliament. Changes to the Act and Regulations are a matter of tax policy, which is the responsibility of the Department of Finance. I assure you that Finance officials are aware of the views expressed on this matter.
A payment of an amount out of a 401(k) plan will generally be subject to American withholding tax. The Government of Canada will usually provide a tax credit for these taxes. However, if the amount is transferred to an RRSP, the credit can only be claimed if there are still taxes payable after the transfer.
I trust that the above information will assist you in responding to XXXXXXXXXX.
Yours sincerely,
The Honourable John McCallum, P.C., M.P.
c.c.: Minister's Office
Political Assistant
Wayne Harding
957-9769
February 7, 2005
2005-011064