Moving back to Canada from U.S.A.: 401(k) IRA, Roth IRA

[jordanrma]

I work in U.S.A. and plan to move back to Canada in the next month or so. I will have no or very little Canadian income this year or next year.

(1) I have a 401(k) account. I heard there is a change in the Roth IRA that may make it more beneficial to directly rollover from a 401(k) to Roth IRA instead of a direct rollover to a traditional IRA. Can you please advise?

(2) I inquired with a few brokers on 401(k) rollover to IRA. Once they heard that I will be a non-resident of the U.S.A., and I will have a Canadian address, they either said I cannot have an IRA account with foreign address OR they cannot maintain an IRA account for a non-resident. They mentioned that they are “... ... not licensed in Canada to offer our products and services.â€￾ I am confused with this licensing thing. Do you know any firm/bank/broker that will allow a Canadian to maintain an IRA account?

(3) One of the firms also said that “Canadian law does not allow Canadian residents to open or maintain U.S. brokerage accounts ... ... â€￾ Is that true? Does it mean I can open an IRA account as a U.S. resident but I cannot maintain it once I become non-resident in U.S.A.?

(4) Another agent mentioned that one cannot hold open-ended mutual funds as a part of an IRA account when that person becomes non-resident in U.S.A. Is that true?

[nelsona]

Roths are in the process of being recognized in Canada as non-taxable, but they need to be funded while non-resident. you would need to roll over your holdings to a Roth before moving, for this to be worthwhile.

The rollover will be entirely taxable in US of course, and until 2009, you have certain limitations on overall income that would likely prevent you from recharacterizing all of it. In 2009 those limits will go away.

as to dealing cross-border, there are some that wil do it. It is good to find one before moving. blackmont is one.

There is a difference between a non-retirement account and a retirememnt account in terms of regulations.

I have not heard of any difernce between closed and open funds.

[jordanrma]

When you said “they need to be funded while non-residentâ€￾, did you mean a Roth IRA will need contribution periodically? Once I move back to Canada, I will be a non-resident with no U.S. income. Can I still contribute in Roth IRA?

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“There is a difference between a non-retirement account and a retirement account in terms of regulations.â€￾
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This IRA (Roth IRA) will be a retirement account. Does it mean that Canadian law allows Canadian residents to maintain U.S. accounts in brokerage firms?

Thanks for your advice in this very confusing issue.

[nelsona]

All contributions need to be made as a non-resident. Contributing (or rolling over from non-Roth) after becoming Cdn resident breaks the shelter.

Cdn law allows it. However the final decision to carry you as a client rsts with the broker. Most firms will not.

[Arteeh]

I know from experience that the compliance departments of most U.S. brokerage firms have a knee jerk reaction to these scenarios and they tell their brokers, that they can't have clients in Canada under any circumstances.

As Nelson mentioned there is a difference between retirement and non-retirement accounts. You are allowed to maintain U.S. retirement accounts after your return to Canada. You are not allowed to maintain non-retirement brokerage accounts. This is regulated by National Instrument 35-101 which you can read at:

http://www.osc.gov.on.ca/Regulation/Rul ... i_shrt.jsp

Your difficulty will be in finding a brokerage company whose compliance department will review the national instrument and let their brokers act accordingly.

Good Luck!