keeping 401k and IRA after moving to canada

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eralli
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keeping 401k and IRA after moving to canada

Post by eralli » Mon Feb 28, 2005 3:08 am

I am US citizen, and have become canada resident recently. How do I keep my 401k and IRA's (Roth and traditional)? I cannot find a financial institution who will allow me to hold such accounts with a canadian address even though they were established b4 I moved. Do you know of a financial institution in US that will allow it. If not, it seems, by force, I must convert them all to an RRSP because that is what is offered by Canadian institutions. (or maybe you know of a canadian institution that allows IRA's & 401k rollover accounts for US citizen's with canadian addresses?).

[I'm a bit perplexed by advice on this forum to leave IRA's and 401k's after moving to canada... while I agree it's preferable... it just doesn't seem possible]

Sincerely, Rick

rdneu56
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Post by rdneu56 » Mon Feb 28, 2005 7:08 am

I am afraid you are doing this a little late. You should have done this before you left the US, it would have been a lot easier. At any rate, you have to call around to find a US institution that is willing to let you manage your accounts from Canada. There aren't very many that will let you do that! I know that Vangard will do it, but I believe that you have to set up an IRA rollover account and you may have to rollover your 401k before you leave the US. That's what I did.
I do not believe that you can convert your IRAs to RRSP. You owe taxes and penalties when you cash in your IRAs and you can contibute to RRSPs only after you have worked for a year as far as I know.

nelsona
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Post by nelsona » Mon Feb 28, 2005 7:16 am

rdneu56 is correct about setting up the account beforehand.

However, he is not correct about having to wait to transfer to RRSP, as this transfer is not related to any RRSP contribution room. Nor is there really any requirement to rollover 401(k) to IRA, although this is usually better.

Making the transfer 'tax-free' (ie paying the US tax but using it as a credit on Cdn return) does require having at least as much Cdn income as the amount you intend to transfer in the year you make the transfer.

Frankly, a US citizen should quite easily and simply leave the account at an address in US (relative, mail-box etc).

<i>nelsona non grata</i>

Russ
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Post by Russ » Mon Feb 28, 2005 9:55 pm

On this same subject, I think it would be useful to know (at least it would for me as I'll need it in the next couple of years), what brokerage-type institutions will allow you to set up an IRA and then manipulate once moved to Canada (and eventually becoming a Canadian resident / US non-resident).

I thought I read in these threads that TD Waterhouse may do this and now Vanguard.

1. Are this 'for sure' ie: - someone's done precisely that?
2. Any suggestions would be appreciated as I'll research it now-ish to be ready for the future.

Thx. again.

tyronen
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Post by tyronen » Tue Mar 01, 2005 6:08 pm

I phoned Ameritrade (considering opening an account there) and they <i>said</i> all they require is a few forms if a US account holder moves to Canada.

Of course, what they say and what they do may be two entirely different things.

I read on another thread that TD Waterhouse does <i>not</i> do this, despite being Canadian-owned.

nelsona
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Post by nelsona » Tue Mar 01, 2005 7:39 pm

'Despite being Cdn owned'

I would say for the <u>very reason </u> that it is Cdn-owned would TDW US be reluctant to deal cross-border with Cdn resident.

Firms with close ties to a Cdn company might be reluctant to deal because the cdn securities watchdogs could come after their Cdn sister firm should a violation occur.



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Norbert Schlenker
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Post by Norbert Schlenker » Fri Mar 04, 2005 6:42 pm

FWIW I keep an IRA at TDWHUSA. They have a Canadian address on file, they send me statements in Canada, and there has been no problem for 4+ years.

scienceguy
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Post by scienceguy » Fri Mar 25, 2005 1:14 pm

On this topic, I am also considering moving back to Canada (I am a Canadian citizen) and am also wondering what to do about my 401k.

Does it not make sense to remove it from 401k status prior to relocating, pay the US taxes and the 10% penalty on the notion that it will still be cheaper than paying the higher Canadian taxes 20 years from now?

Thanks,

Adam.

nelsona
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Post by nelsona » Fri Mar 25, 2005 7:17 pm

This is often the recommendation of many cross-border experts.

Certainly, if it a smaller ammount, and your departure situation is that you can pull it out at the beginning of the calendar year, just before you return to Canada, and have little other US income that year, this can make sense. Even if it is just for simplicity sake.

But to collapse a $400K 400(k) and forego tax deferral for 20 years would not be my first instinct. I rather keep the $150K growing in my account rather than give it to IRS.

Who knows, your situation might cahnge in future such that you might be able to extract some of the money penalty-free, or might use it in years (before retirement) when you have no income.

<i>nelsona non grata... and non pro</i>

Bill
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Post by Bill » Sat Mar 26, 2005 3:42 pm

I started a thread on the same subject (Managing IRA from Canada) several months ago. I am a US citizen with an IRA and have been living as a Landed Immigrant in Canada for about 16 years. When I moved up here I had IRAs with two different mutual fund companies and had no problem in keeping them with my Canadian address. Several years ago I transferred the funds in one to the other - again, no problem. However, sometime post-9/11, Homeland security and the Patriot Act, when I tried to open a new account and transfer a portion of my IRA to a different company I found that I could not. No company would allow me to open an account using a foreign mailing address. It is often suggested that people in this situation use the address of a family member or friend for such purposes. My aging parents are not capable of that and I don't feel comfortable asking a friend to accept that responsibility. (I also question how it's considered more secure to encourage people to set up dummy addresses in the US as opposed to use their actual addresses in their places of residence - but that's another debate).

I eventually contacted a full service financial asset management company in the town where I used to live in the states. They have gone through various checks and tests (Canada is a "yes" country as opposed to a "no" country in the eyes of the US, whatever that means) and I've signed several forms about my US citizenship. It looks like they are going to accept my account. After all this, I'm wondering if most companies simply don't want to do the legwork required to have an account with someone living abroad. This is certainly not my first choice. I am a DIYer who prefers to use a discount brokerage. I know that there are many Canadians who have worked at one time or another in the US and are still able to manage their IRA accounts from Canada. I know some use ETrade but I think those accounts were set up before they returned to Canada.

scienceguy
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Post by scienceguy » Mon Mar 28, 2005 9:31 am

I have about 35K in the 401k, am 35 yrs old and would be moving to Canada in June so I'll have US income from Jan-June. Is this is a "complicated" situation? Or would it make things much simpler for me in the long run? Incidentally, I'd also be paying Massachusetts 5.7% tax as well I assume which may help sway the argument for leaving it where it is....



<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote"><i>Originally posted by nelsona</i>

This is often the recommendation of many cross-border experts.

Certainly, if it a smaller ammount, and your departure situation is that you can pull it out at the beginning of the calendar year, just before you return to Canada, and have little other US income that year, this can make sense. Even if it is just for simplicity sake.

But to collapse a $400K 400(k) and forego tax deferral for 20 years would not be my first instinct. I rather keep the $150K growing in my account rather than give it to IRS.

Who knows, your situation might cahnge in future such that you might be able to extract some of the money penalty-free, or might use it in years (before retirement) when you have no income.

<i>nelsona non grata... and non pro</i>
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

nelsona
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Post by nelsona » Mon Mar 28, 2005 9:54 am

Yeah, you are unlikely to save very much tax, if any, by taking it out mid-year, but indeed, it is not very much money to be having to worry about for the next 30 years.

You are a good candidate though for a near-future 'transfer' to Canada, (for simplicity) so look at the thread on transferring IRA to Canada.

Basically, the next year you make 40-50K Cdn in Canada, you could cash out the IRA and get full credit for the tax/penalty you pay on your Cdn tax, by putting the ful amount (including the US tax portion) in an RRSP.



<i>nelsona non grata... and non pro</i>

KenD
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Post by KenD » Mon Mar 28, 2005 2:28 pm

Both Putnam Investments (my 401k) and Fidelity Investments (my wife's IRA) both switched our addresses over to Canada without any problem. We had to phone them to make the address change, rather than doing it online, but that's it for how difficult it was.

JeffL
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Post by JeffL » Mon Mar 28, 2005 4:56 pm

Great forum! Thanks in advance for your advice. My wife and I have been employed in the US for about a year and a half, after moving from Nova Scotia. We have 401(k) plans available to us through our employers, along with a defined benefit plan. The 401(k) plan is optional, and there is no employer match for the contributions that we make. Does it make sense for us to contribute to the 401(k) plan, especially if we plan to return to Canada someday? Does the benefit of the tax deferral outweigh the tax implications and hassles once we return? Sorry for the very broad question, but I'm just looking for an opinion.

Thanks, Jeff

nelsona
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Post by nelsona » Mon Mar 28, 2005 8:19 pm

Your 401(k) is taken off the tops of your joint salary, so I would think that this is at quite a high tax rate.

Since you have a pension, you will have US tax consequences in the future, so not having a 401(k) won't simplify anything.

You are passing up the chance of locking away $30,000 a year into your pension.



<i>nelsona non grata... and non pro</i>

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