401k: The question to ask yourself is why do you want to reduce your taxable income now? The best answer is that you plan to pay less taxes in retirement than now. To come out ahead, you need to take your tax rebate $ and put them into your 401k. Which many people don't do.
If this is not the reason, you may be better off to use your cash to pay off debt, and borrow to invest in non-registered funds, getting the tax deduction on your borrowing, (or your landlord investment idea).
House ownership -- foreigners can own and rent property in the USA. Just file all your tax forms needed.
Your penalties stated are correct, but watch out, as some Brokerages in the usa do not stick to the 15% withholding, and try to holdback a lot more. The low 15% is only due to the tax treaty with Canada, and some banks want to be extra conservative because they are on the hook if they get it wrong. (Wells Fargo, I am growling at you). To get the overage back, you need to file with the IRS that year and wait.
Getting the money back. : So for example if I had saved 500k and transferred that over to the RRSP. There would be a 50k penalty and a 75k withheld. If my annual taxes are around 25k how much of this would I recoup? Only 25k? Or 25k + the 75k withheld?
This needs to be a "one time" rollover, not several amounts, and many brokerages want to close out non-resident IRAS, anyway.
Ignoring exchange rates:
Step 1: Withdraw 500k from IRA. Receive 375k. (amount minus penalty and withholding)
Step 2: Put 500k into RRSP same year. (find the money to top it up from somewhere)
Step 3: Complete your Canada Income tax form after year end.
-Your income is now (income before+500k) and your RRSP deduction is 500k. Pay net zero taxes to canada on the rollover.
-Your canadian taxes from (income - RRSP contribution) are $25k (per your example)
- you have foreign taxes paid of $125k.
- you subtract $125k as taxes already paid from $25k taxes calculated and pay zero... Sorry no more money for you! No credits Actually, the calculation is not quite this simple, and involves ratios, so it could be less... Leave a large buffer of taxes owing in canada in the year you want to rollover funds.
Step 4: Calculate AMT
Because you have a very high income with the +500k, but low taxes, you must calculate AMT, and may still have to pay taxes. Those taxes can be claimed back in future 3(?) years if you do not have AMT again, but only up to the amount in AMT paid. Essentially AMT is just a hassle, as if you continue to have income, you will get the money back.
Step 5: Receive your notice of assessment in June.
Find out that there was a maximum on the RRSP rollover of some amount.. which can not be found in any CCRA documents.. (I forget, about $275k?)... so the extra is now overfunding your RRSP, and you need to deal with the mess thus created and maybe have more taxes ..
Morale -- talk to a cross border tax accountant before you do this move.
Can the conversion be spread out over a few years so that I can recoup 25k each year?the amount you withdraw NOPE, this is not AMT. it is a one year only deal.
Green card If you are planning to buy property in USA, I highly recommend applying for a greencard as soon as possible. It can take several years. In the meantime, if you employer says to you that "sorry, the job only pays $60k now, and is located in Denver" you have no choice but to accept it and relocate, or move back to Canada within 30 days of end of employment (or find another employer to sponsor you within 30 days).
Other
The only other decision may be to limit the total amount in the IRA / 401k accounts to the maximum that can be rolled over into the RRSP. Remaining amounts then are invested in ROTH and non-registered, to make it easier for you.
CAUTION
Note that the tax guidelines for canada / usa and how to apply taxes on pension funds do change. For example, Before 2010, you could not claim back the 10% 401k penalty, upon a rollover, but you can now. Wells Fargo allowed me to invest and trade on my IRA even while non-resident for 3 years, then suddenly froze all my accounts...
Who knows what the future will bring?
As for Canadian $'s versus US$'s... It only really matters when you are within 10 years of using the money.
IMO, in the last 5 years of being in the USA, if you know that you are moving back, then you start looking for jumps in the exchange rate, and start converting a portion of your money back. Note, you can not roll over us$ directly into an RRSP, but you can buy USD$ stocks once the cash is in the RRSP, so if the exchange rate is low, and you don't need the money yet, it is not a big deal. Convert to CDN, put into RRSP, then convert to $USD stocks within the same week, for minimal currency risk. Some brokerages eliminate some of these steps, too.
Best plan is to keep saving and investing, both in business, savings, and in your own skills. At the end of the day, it really doesn't matter much if you lose 10% to tax issues between the countries, as long as you keep building your stache.