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I may not be able to answer your question completely because you claim you are a "dual" citizen, as opposed to a citizen of Canada and a resident of the United States. However, I just (as in 2 hours ago) completed researching this very issue for someone who is a Canadian citizen, living in the U.S., and wondering what happens if she contributes to a 401(k) and then moves back to Canada.

I'll tell you what I've learned:
The ruling document to this issue is the Convention Between the United States of America and Canada with Respect to Taxes on Income and on Capital (the "Treaty"). The most relevant provision of this treaty is Article XVIII, §1-2 (as modified by the First Protocol). These sections state:

"1. Pensions ... arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State, but the amount of any such pension that would be excluded from taxable income in the first-mentioned State if the recipient were a resident thereof shall be exempt from taxation in that other State.

2. However,
(a) Pensions may also be taxed in the Contracting State in which they arise and according to the laws of that State; but if a resident of the other Contracting State is the beneficial owner of a periodic pension payment, the tax so charged shall not exceed 15 per cent of the gross amount of such payment ... "

The unfortunate conclusion drawn from these sections is that distributions from a U.S.-based 401(k) plan paid to a resident of Canada are subject to tax in both countries. However, the amount of income taxed in Canada cannot exceed the amount that would be taxed in the U.S. had the distribution been paid to a U.S. resident. Note also, that the provision only includes language referring to "periodic pension payment[s]", not lump sum distributions. It is not clear to me whether a lump sum distribution would be taxed at the maximum rate of 15%.

Thus, depending upon the manner in which such payments are taxed in Canada (and whether any foreign tax credits exist there), you would potentially be subjected to double taxation on your distributions.

But, as stated, because you say you are a "dual" citizen, my findings may not be applicable for you. However, my instinct says that the Treaty, as discussed above, still remains the prevaling document.

You can request a copy of the treaty, as well as Technical Explanaations, from the U.S. Treasury Department. Their website is

You should also take a look at IRS Publication 597, Information on the United States-Canada Income Tax Treaty, which is available in PDF format on the IRS's website. That address is

Hope this has been helpful to you!

(who thinks it an amazing coincidence that he was just researching this same matter)
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