Differences Between 401(k), Roth 401(k), 403(b), & 457

For many Americans (and cross-border Canadians working in the U.S.), employer-sponsored retirement plans like 401(k), Roth 401(k), 403(b), and 457(b) play a central role in long-term wealth building. But what happens when you leave the U.S., particularly if you become a non-resident alien or a Canadian resident? Understanding your options, and potential tax traps, is essential. 

1. Plan-by-Plan Overview

401(k) Plan 

• Who Offers It: Private-sector employers 

• Contribution Limit (2025): $23,500 + $7,500 catch-up if age 50+ 

• Tax Treatment: 

• Traditional 401(k): Pre-tax contributions; tax-deferred investment growth, taxed as ordinary income upon withdrawal 

• Employer contributions also grow tax-deferred 

• Withdrawals: 

• Allowed penalty-free after age 59½ (or age 55 if separated from employer) 

• Required Minimum Distributions (RMDs) must start by April 1 of the year after the owner turns age 73 

Roth 401(k) 

• Who Offers It: Many 401(k) plans now include Roth options 

• Contribution Limit: Shared with traditional 401(k) 

• Tax Treatment: 

• Contributions are after-tax 

• Qualified withdrawals (age 59½ + account held for 5+ years) are tax-free 

• Contributions can be taken out anytime tax-free 

• Withdrawals: 

• Withdrawals from Roth IRAs and Designated Roth accounts (401(k) or 403(b)) are not required until after the death of the account owner. However, the beneficiaries of Roth IRAs and Designated Roth accounts are subject to RMD rules. 

• Best Use: Those expecting higher taxes when retiring in Canada or cross-border individuals seeking tax diversification 

403(b) Plan 

• Who Offers It: Nonprofits, public schools, universities, hospitals 

• Contribution Limit: Same as 401(k) 

• Tax Treatment: Nearly identical to a traditional 401(k) 

• Special Feature: Some 403(b) plans offer 15-year service catch-up for long-tenured employees. Under certain conditions, employees with 15 years or more of service to the same 403(b) provider can contribute up to $3,000 extra per year, up to a maximum of $15,000. 

457(b) Plan 

• Who Offers It: State/local governments and some nonprofits 

• Contribution Limit: $23,000 (separate from 401(k)/403(b) limits!) 

• Tax Treatment: Pre-tax contributions, tax-deferred investment income, distributions taxes as ordinary income 

• Key Benefits: 

• No early withdrawal penalty if separated from service (even before age 59½) 

• Some plans offer a special 3-year catch-up provision before retirement. A 457(b) plan’s annual contributions and other additions (excluding earnings) to a participant’s account cannot exceed the lesser of: 

• 100% of the participant’s includible compensation, or 

• the elective deferral limit  

2. Rollover Rules for All Four Plans

To simplify or consolidate retirement savings, many employees roll over their workplace plans when they leave a job. 

Indirect rollovers (where you take a distribution and deposit it yourself) are limited to once per year and subject to 20% withholding unless rolled over directly. 

3. What If You Become a Non-Resident or Move to Canada?

U.S. citizens continue to file U.S. tax returns when resident in Canada, so the taxation doesn’t change. When you leave the U.S. and become a non-resident alien, the rules and tax consequences, change significantly. 

1. U.S. Tax Withholding on Distributions

If you’re a non-resident alien, U.S. payers generally withhold 30% on retirement distributions unless a tax treaty reduces the rate. The withholding rate for Canadian residents is 15%. 

🇨🇦 U.S.–Canada Tax Treaty: 

1. Canadian Tax Treatment

As a Canadian resident, you’ll also owe Canadian tax on your U.S. retirement distributions, but: 

• You can claim a foreign tax credit for the 15% withheld in the U.S. 

• Distributions are taxed as ordinary income for 401(k), 403(b), and 457(b) accounts. Roth distributions are tax-free in both countries. 

Should You Roll Over Before Leaving the U.S.? 

Yes—often. Here’s why: 

Complete all rollovers while still a U.S. tax resident for cleaner tax reporting, especially for Roth accounts. 

5. Key Considerations for Canadian Residents with U.S. Plans

Do not contribute to IRAs or Roth IRAs after becoming a Canadian resident, this may create complications under Canadian tax law. Distributions from Roth IRAs or Roth 401(k)s may not be tax-free in Canada unless the account was opened and funded before becoming Canadian resident. You may contribute to an employer sponsored retirement plan if you work remotely from Canada, or commute to a U.S. employer. You can find more information in our article about Canadian residents deducting 401(k) contributions. 

• File Form W-8BEN with your U.S. plan custodian if you become a nonresident alien to ensure the correct 15% treaty withholding is applied. File Form W9 if you are a U.S. citizen moving abroad. 

• RMDs (Required Minimum Distributions) still apply from IRAs, 401(k), 403(b), 457(b), but not Roth IRAs. 

• If you are moving to Canada, you will be living in a higher tax jurisdiction than anywhere in the U.S. If you are close to retirement, it may not make sense for you to contribute to a deductible 401(k), 403(b), or 457 plan. Instead, you should consider your marginal tax bracket in each country. If your Canadian tax bracket is significantly higher than your U.S. bracket, you may want to contribute to the applicable Roth option instead. Roth accounts remain tax-free in Canada, both the investment income and distributions. 

Cross-Border Retirement Planning Simplified 

Whether you’ve worked in the U.S. and are returning to Canada, or you’re a dual citizen navigating tax obligations on both sides of the 49th parallel, you deserve a strategy that respects your mobility and your money. 

At 49th Parallel Wealth Management, we specialize in helping Canadians and Americans manage cross-border tax, retirement, and investment transitions. Let us help you consolidate accounts, facilitate rollovers, reduce taxes, and retire with confidence, no matter where life takes you.