Author Topic: Question about a US 457B account (US citizen)  (Read 2840 times)

FLBiker

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Question about a US 457B account (US citizen)
« on: June 14, 2019, 10:52:00 AM »
My wife and I are moving to Canada soon (both US citizens) and we both have 457B accounts. Those are deferred compensation accounts available to governmental employees. I looked around the CRA website (and the larger internet) and emailed the CRA, and they have no publications around 457Bs.

So here's my thinking -- if we keep the 457Bs, what's the worst case scenario?

Scenario 1) CRA doesn't recognize them, taxes the gains (but NOT the initial balance). When I withdraw, CRA treats as gains in a taxable account, IRS treats as income, foreign tax credits paid in Canada may cover the IRS bill.

Scenario 2) CRA recognizes them, taxes them as income upon withdrawal, which would be at a higher rate than we would have paid in the US, but we're not being double taxed.

Scenario 3) CRA taxes the initial balance as income, taxes the gains, IRS taxes withdrawal as income. This definitely seems like the worst, but is it possible?

Am I missing another potential scenario? I'd really prefer keeping them (over rolling them into a traditional IRA) because they don't have an age limit for withdrawals (unlike a traditional IRA). I'm really at a loss as to how to proceed considering the CRA doesn't have an official position on them (although I do appreciate their timely response).

Thanks so much!

Goldielocks

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Re: Question about a US 457B account (US citizen)
« Reply #1 on: June 18, 2019, 04:55:09 PM »
If you can covert them to an IRA  (like converting a 401K to an IRA), before your leave, I would do so.  There are a lot of well recognized tax treaty items surrounding IRAs that would make everything easier for you later.   I did this with my 401k.

FLBiker

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Re: Question about a US 457B account (US citizen)
« Reply #2 on: June 26, 2019, 10:54:59 AM »
Thanks!  I'd like to avoid doing this because 457bs don't have an age restriction (unlike IRAs).  I'm 42 and my wife is 38 and we hope to retire within 5-10 years.