# Taxation of retirement pension contributions



## dlewis55 (Oct 23, 2011)

Hello,

I am presently working in Canada and will be living in the US as a resident. My present employer contributes 11% of my wage to a pension plan, while I pay 3%. This gives me a total of 14% of my wage in pension contribution a year. In Canada, pension/RRSP is not taxed if it is put into a pension up to a specified amount, by putting money into these vehicles they lowers my taxable income. I understand the US taxes all contributions in a RRSP and all gains made by the RRSP. Is it the same for pension plans? Can some one send me a good link for taxation in the US and Canada

Thanks


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## Bevdeforges (Nov 16, 2007)

In the US, most pension plans are now 401K plans, which works very much like your RRSP in Canada. If not, there are personal plans, called IRAs (Individual Retirement Accounts), where you deduct your contributions from your taxable income, accumulate your funds over time tax free and then pay regular income tax on what you withdraw on retirement.

I don't believe you can roll over your RRSP funds into a 401K or IRA - but you might ask the question of the HR department after you arrive in the US. (Nothing ventured, nothing gained!)
Cheers,
Bev


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## twostep (Apr 3, 2008)

Bevdeforges said:


> In the US, most pension plans are now 401K plans, which works very much like your RRSP in Canada. If not, there are personal plans, called IRAs (Individual Retirement Accounts), where you deduct your contributions from your taxable income, accumulate your funds over time tax free and then pay regular income tax on what you withdraw on retirement.
> 
> I don't believe you can roll over your RRSP funds into a 401K or IRA - but you might ask the question of the HR department after you arrive in the US. (Nothing ventured, nothing gained!)
> Cheers,
> Bev


Just a quick question Bev - on a Roth IRA do you not pay applicable tax up front?


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## Bevdeforges (Nov 16, 2007)

twostep said:


> Just a quick question Bev - on a Roth IRA do you not pay applicable tax up front?


Roth IRAs are a whole different ball game. What you pay into the Roth IRA is NOT deducted from your taxable income, and I guess you don't pay taxes on withdrawal - or maybe you pay tax only on the gains? Not sure about that last bit, but I do know that to convert a regular IRA to a Roth, you need to pay up all the taxes on the rollover.

I've never really bothered getting into the Roth IRAs since they are not permitted for those of us who file "married filing separately." 
Cheers,
Bev


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## JohnSoCal (Sep 2, 2007)

Bevdeforges said:


> Roth IRAs are a whole different ball game. What you pay into the Roth IRA is NOT deducted from your taxable income, and I guess you don't pay taxes on withdrawal - or maybe you pay tax only on the gains? Not sure about that last bit, but I do know that to convert a regular IRA to a Roth, you need to pay up all the taxes on the rollover.
> 
> I've never really bothered getting into the Roth IRAs since they are not permitted for those of us who file "married filing separately."
> Cheers,
> Bev


With a Roth IRA, your contribution is not tax deductible as you said. That is the only tax you pay as there are no taxes on withdrawals nor any gains.


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## JohnSoCal (Sep 2, 2007)

dlewis55 said:


> Hello,
> 
> I am presently working in Canada and will be living in the US as a resident. My present employer contributes 11% of my wage to a pension plan, while I pay 3%. This gives me a total of 14% of my wage in pension contribution a year. In Canada, pension/RRSP is not taxed if it is put into a pension up to a specified amount, by putting money into these vehicles they lowers my taxable income. I understand the US taxes all contributions in a RRSP and all gains made by the RRSP. Is it the same for pension plans? Can some one send me a good link for taxation in the US and Canada
> 
> Thanks


Your understanding is NOT correct. The system here in the US is much the same. I worked for an employer that had both a defined pension plan as well as 401K. The contributions to both the pension plan and 401K are NOT taxed. This lowers your taxable income considerably. Very few companies now offer defined benefit plans, opting for 401K plans where you voluntarily contribute to it and the employer will usually match part of it. Gains are NOT taxed in a defined benefit plan, 401K, nor IRA. You pay tax only when you make withdrawals.

If you are married and your wife doesn't work, you can also contribute to a spousal IRA where the contributions are tax deductible.

I have done them all. I also had my own incorporated business with my own defined benefit plan where I was able to contribute $175,000 /year that was not taxed.


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## itlajfk (Oct 30, 2011)

Actually, we're missing a key bit of information. You say you are working in Canada at present - are you working for the Canadian subsidiary of a U.S. company, and will you become an employee of the U.S. parent company when you move to the U.S.? It's difficult to answer your question without knowing if you will be working for an American or Canadian company once you relocate.

I was in a similar situation to you - worked in Canada, transferred to the U.S. (I'm Canadian); however, when I transferred, I became an employee of the U.S. parent and a participant in their pension plan (which for U.S. tax purposes, is non-taxable until you start withdrawing from it). I do know that what the IRS views as a 'pension' plan does not include anything located in a foreign country. On the other hand, depending on your situation, you may be eligible for treaty exemptions. So, a bit more info would help!


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