Are Your 401(K) Contributions Deductible in Canada?

You might recognize this situation. You are a Canadian resident working in the USA on a TN visa. Your employer offers a 401(K) plan that includes a matching contribution. You know contributing to the 401(K) plan lowers your taxable income in the USA. Does the same hold true for your taxable income in Canada?

Provided certain conditions are met, you may deduct, for Canadian tax purposes, the contributions you make to a 401(k) plan in the USA.

For example, let's assume you are a resident of Canada who is employed in the USA and you contribute to your employer-sponsored 401(K). Under the USA-Canada tax treaty, your contribution to the plan (up to your remaining RRSP deduction room) will be deductible for Canadian tax purposes. But you need to be careful because your 401(K) deduction on your Canadian return is limited to your RRSP contribution room minus any other RRSP contributions. So if you've made RRSP contributions as well as 401(K) contributions, then you may have to defer some of the RRSP contributions you made and deduct them in a future year.

In addition, keep in mind that IRA contributions are NOT treated the same way as 401(K) contributions and are not deductible in Canada.

At Gedeon Law & CPA, we specialize in assisting Canadians working in the USA with filing tax returns and retirement income planning on both sides of the border.

Gedeon Law & CPA
A Professional Law & Accountancy Corporation
5155 W. Rosecrans Ave, Suite 217
Hawthorne  CA  90250
Office:  (424) 254 9529
Fax:     (310) 602 6409
www.gedeonlawcpa.com