401k/Roth - is it even worth it?

I just moved down south after graduating in Canada, and I'm wondering if contributing to my company's 401k plan is smart given my goals and situation. The main thing being that I don't intend to stay in the US for more than three years, although it still might happen. I plan to maintain residency in BC for the time being (I'm not sure how BC Health will work, but that's another can of worms) and will continue to file Canadian income tax.

My employer has a 401k plan and matches 50% up to the first 6% of gross income. The first vesting period is 20% at 2 years and the last is at 6 years.

Please correct me if I'm wrong, but I'm under the assumption that beginning in 2009 any 401k contributions are deductible on the income I report on my Canadian tax returns. Also, if I contribute any income to a Roth, I have to report investment gains on my Canadian tax returns, since there is no link to the TFSA.

So assuming it's within my RRSP contribution limit, if I contribute the max 401k amount of $16.5k for two years, I'll have $33k in my account. Then I wait until the next calendar year (when I will have no US income), cash out the $33k, get hit with the 10% penalty and 30% withholding, report the remainder ($20k) as income on my Canadian return, and deduct that as an RRSP contribution. I then wait another year to file income taxes on cashing out the 401k, which was $33k in gross income and $10k in withheld tax, which should give me a refund of about $6k. So all in all, I get back $26k out of my $33k in contributions, and I have to wait up to two years. If I had just paid US income taxes on that $33k, I would have about $23k that I could've contributed right away to my RRSP. Seems to be not worth it given the effort involved.

Is this math correct? So is it not worth it to contribute to a 401k if I'm planning a short stay in the US? What about the rules for investment gains? I.e., do I have to pay US taxes on my RRSP and/or TFSA gains, and do I have to pay Canadian taxes on my 401k and/or Roth gains?

If you are living in US, then you shouldn't have to report your US income in canada at all, so the deductibility of 401(k) in canada is moot. This would only apply if you were commuting to US to work. So, look into Cdn non-residency (unless you have a wife in canada and return there on wek-ends, you will be US resident and Cdn non-resident from day one).

The more important consideration is the vesting of your 401(k). If some of your 401(k) isn't going to be vested, you might as well save yourself the trouble, save your money and invest it in canada when you return. The tax savings on your US return are not going to be that substantial as compared to later investing it in an RRSP or even TFSA.

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