A bit of a tax planning question for the bright minds of the Serbinski forums!
I'm on an H-1B in the US, and I've been maxing out my (Roth) 401k and IRAs. Reading through the forums here, however, I understand that capital gains and losses 'reset' if and when I move back to Canada, in terms of Canadian taxation. The advice supplied to other posters has been to sell your losers before moving back to Canada, for tax loss harvesting on the US side, and sell your winners when you move back to Canada for and enjoy your untaxed capital gain.
Armed with this advice, is there really any advantage to using a tax-advantaged account in the US for any reasons other than 1) employer 401k match 2) dividend producing assets? It seems I can just pile my money into capital gains producing investments and get a free ride if and when I move back to Canada.
Am I missing something? Will my holdings be deemed sold on the US side when I move back to Canada?
Additionally, what would be the actual process for selling my holdings once I move back to Canada? Would I have to move them to a Canadian brokerage, or could I file a W8-BEN with the US and sell them without issue from my US account after moving to Canada?
Thanks!
Canadian in US on H-1B - 401k/IRA or taxable account?
Moderator: Mark T Serbinski CA CPA
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rugby style
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You are correct, which is why you should either be using your comapany's Roth401(k), your own Roth, and/or what I've called for manny years the "Canadian Roth", which is tax-managed funds/investemnts which you simply sell after you are no longer a US taxpayer.
Look at it another way: you are getting a deduction now (at probably 25% marginal rate plus state tax rate). If you are planning to move back to Canada, you will surely be paying at least that or more marginally on that income, plus the slight mismatch on foreign tax credits that usually comes along.
When the treatment of Roths was uncertain in Canada, I always recomended this approach. But now that Roths are sheltered in canada once you return, you can add Roths to your mix.
The advice I give now is BEFORE you leave US, you convert any 401(k)/IRA to a Roth, pay the US tax, and never pay any tax in US or Canada on these accounts again.
The process of selling your portfolio will depend on your broker. W8-BEN has nothing to do with this. Securities laws are what matters. You have an SSN, so there would be no withholding anyways.
Look at it another way: you are getting a deduction now (at probably 25% marginal rate plus state tax rate). If you are planning to move back to Canada, you will surely be paying at least that or more marginally on that income, plus the slight mismatch on foreign tax credits that usually comes along.
When the treatment of Roths was uncertain in Canada, I always recomended this approach. But now that Roths are sheltered in canada once you return, you can add Roths to your mix.
The advice I give now is BEFORE you leave US, you convert any 401(k)/IRA to a Roth, pay the US tax, and never pay any tax in US or Canada on these accounts again.
The process of selling your portfolio will depend on your broker. W8-BEN has nothing to do with this. Securities laws are what matters. You have an SSN, so there would be no withholding anyways.
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rugby style
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- Joined: Mon Oct 24, 2011 7:27 pm
Thanks! My 401k and IRA are both Roth for the reasons you outlined. I don't want to be owing the IRS anything when I'm 60!
Based on your response, it seems I have two options:
Option a) Invest in taxable accounts in the US. Pay tax on dividends. Pay no tax on capital gains in US or Canada upon moving back to Canada and selling.
Option b) Invest in Roth accounts in the US. Pay no tax on dividends. Pay no capital gains tax in US or Canada, but I'll need to be 59.5 to withdraw appreciated assets (Roth contributions can be withdrawn at any time).
I'm thinking I'll blend the two approaches - max my Roths and put any extra in a taxable brokerage. Once I'm back in Canada, I can pull the contributions to my Roth to pad my RRSP if required, depending on my income.
Based on your response, it seems I have two options:
Option a) Invest in taxable accounts in the US. Pay tax on dividends. Pay no tax on capital gains in US or Canada upon moving back to Canada and selling.
Option b) Invest in Roth accounts in the US. Pay no tax on dividends. Pay no capital gains tax in US or Canada, but I'll need to be 59.5 to withdraw appreciated assets (Roth contributions can be withdrawn at any time).
I'm thinking I'll blend the two approaches - max my Roths and put any extra in a taxable brokerage. Once I'm back in Canada, I can pull the contributions to my Roth to pad my RRSP if required, depending on my income.