Management of IRA's in US while Canadian resident

stoneam · Post by **stoneam** » Wed Oct 21, 2009 12:53 pm

I have read The American in Canada several times now, and have a question concerning an area of concern:

their book states that for a US Citizen, Canadian Permanent resident, living in canada, filing taxes in both countries as required, that there are restrictions on American IRAs being managed in the US.

I have retained a business address in the US and use that for all statements associated with these holdings, this may be why so far after 3 years I have not received notification of lack of trading flexibilty.

That said, their language is unclear as to the potential impact these holdings may have and that fact that trading does occur. This is a professionally advised holding, and I have confirmed that all advisors do NOT carry registration in my province of domicile.

Is this a "you might have problems trading issue" or is this a legal or compliance issue?

nelsona · Post by **nelsona** » Wed Oct 21, 2009 3:07 pm

For IRAs, the issue of having them while in Canada is NOT a legal issue, it is a COMPANY policy issue. Most US firms just don't want to deal with it; but if you find a firm willing to do so, then all is well.

I never advise a fake address for any account.

stoneam · Post by **stoneam** » Wed Oct 21, 2009 3:21 pm

Just to be clear, and since others will read this posting, I do not have a fake US address. As a US citizen and US part-time worker, I have an address in the US from which I do business in the US. No fakery involved, there are many of us who have more than one place of business - mine just happen to be in two countries.

nelsona · Post by **nelsona** » Wed Oct 21, 2009 3:30 pm

Yes, but you RESIDE (your words) in Canada.
Even if you lived in US, your place of business would still not be your residence.

That is what matters to regulators. And it is for your protection. But, you are free to explain this to your US brokerage (as you explained it above). If they are happy with this, fine. Maybe you already have.

And I'm quite sure you do live in Canada, Otherwise, after a while, your PR status in Canada will be in jeopardy, no?

And my statement is there EXACTLY because "others" will read this. It applies to everyone. Maybe it applies to you, too.

nelsona · Post by **nelsona** » Wed Oct 21, 2009 3:31 pm

If you had a country place in US, even this would be questionable as your residence, but at least you would reside there occasionally.

ExpatAmerican · Post by **ExpatAmerican** » Thu Oct 22, 2009 3:22 pm

To properly adhere to current securities laws in the US and Canada in your situation (Canadian resident with an IRA), just remember these guidelines. Your adivsor and his firm need to be licensed in the jurisdication in which you reside. So you would need to ensure that both your individual advisor and his firm are NASD licensed and in your former state of residence as well as licensed in your current province. And there are not many that fit that bill. Furthermore, you also need to ensure that the securities that an investor (you) purchases in his account (whether qualified plan in an IRA, registered plan in an RRSP, or regular cash account) are eligiible for purchase in your jurisdiction. For example, open-end mutual funds in the US are not eligible for purchase by non-US residents. Vice versa for Canadian mutual funds for US residents. In summary, need to check the registration of your firm and advisor, and if your investments are eligible for purchase in your jurisdiction. And of course Nelsona is correct on the address issue. It needs to be changed. Darrell Thompson at Blackmont Capital in Toronto can help at 866-775-7704.

nelsona · Post by **nelsona** » Thu Oct 22, 2009 3:41 pm

Expat,

Quick question.

Exactly what can a US resident buy/trade with a properly compliant RRSP brokerage account in Canada?

Can he buy Cdn mutual funds? Or is he limited to stocks and etfs?

ExpatAmerican · Post by **ExpatAmerican** » Thu Oct 22, 2009 6:04 pm

Technically speaking, there is no exemption that I have ever seen that would allow the (legal) purchase of a Canadian open-end mutual fund (or similarly US-resident prohibited security) in an RRSP held by a US resident. Of course, as you well know, there is an advsor/advisor firm exception to US securities laws that allows a Canadian broker/his firm to deal with US residents with RRSP's (in most states). But I can find no exemption/exception that allows US residents (with RRSPs) to buy securities that have not been approved for US resident purchase (a.k.a. Canadian open-end mutual funds).

Practically speaking, on the other hand, in my experience, I understand that such practice is manifest across the industry (purchasing said funds for US residents) in Canada.

ExpatAmerican · Post by **ExpatAmerican** » Thu Oct 22, 2009 6:16 pm

Sorry Nelsona, almost forgot. A good rule of thumb on allowed purchases for US residents is pretty much nearly anything that is traded on a US or Canadian exchange would be acceptable (excepting exchange-traded master lps), US or Canadian stocks or ETF's, Canadian or US corporte and treasury bonds. Ironically, US open-end mutual funds would be legal to buy, but no Canadian firms that I know of are set up to allow purchase of such US open-end funds in an RRSP. A good broker will always vet any/all purchases for all their clients as to security jurisdictional appropriateness.

ExpatAmerican · Post by **ExpatAmerican** » Thu Oct 22, 2009 6:18 pm

Sorry Nelsona, almost forgot. A good rule of thumb on allowed purchases for US residents is pretty much nearly anything that is traded on a US or Canadian exchange would be acceptable (excepting exchange-traded master lps), US or Canadian stocks or ETF's, Canadian or US corporate and treasury bonds. Ironically, US open-end mutual funds would be legal to buy, but no Canadian firms that I know of are set up to allow purchase of such US open-end funds in an RRSP. A good broker will always vet any/all purchases for all their clients as to security jurisdictional appropriateness.

nelsona · Post by **nelsona** » Thu Oct 22, 2009 8:30 pm

Thanks.

My TDW broker has never told me I could not by mf's (although i never have) in my RRSP. Good to know

bruce · Post by **bruce** » Sun Nov 01, 2009 8:47 pm

"To properly adhere to current securities laws in the US and Canada in your situation (Canadian resident with an IRA), just remember these guidelines. Your adivsor and his firm need to be licensed in the jurisdication in which you reside. So you would need to ensure that both your individual advisor and his firm are NASD licensed and in your former state of residence as well as licensed in your current province."

I believe this is only true if the US broker is giving you "advice". As far as I know, there should be no problems for an "order execution only" account (e.g. discount brokerage)... you just cannot discuss any financial planning or suitability of investments etc. with the brokerage staff.

ExpatAmerican · Post by **ExpatAmerican** » Sun Nov 01, 2009 11:37 pm

Respectfully, not even the most liberal interpretation of the Securities Exchange Act of 1934 (which empowers the SEC with the power to register and regulate brokers and their firms) makes any such allowance(s). You can easily read it for yourself at:

http://uscode.house.gov/download/pls/15C2B.txt

Of course you can also call any discount brokerage firm (those that offer no advice), and they will tell you the same thing that I just did.

bruce · Post by **bruce** » Mon Nov 02, 2009 2:18 am

Your interpretation that a Canadian resident cannot trade in an IRA unless the broker is licensed in Canada directly contradicts what Nelsona has been saying (and his interpretation on this issue has always made sense to me). I'm not saying you're wrong; however, I have learned over the last couple years never to bet against Nelsona!

I really don't understand why the SEC would care if a broker is licensed in Canada? The OSC doesn't seem to have a problem provided we're talking about U.S. retirement accounts. There are lots of Canadians that trade IRAs (with legitimate Canadian addresses on file) and I would bet that most are not with Blackmont. Perhaps there is a difference between the "letter of the law" and what happens in reality.

Since you have already read the legislation, perhaps you can point out the clause/verbiage that supports your position. Thanks!

ExpatAmerican · Post by **ExpatAmerican** » Mon Nov 02, 2009 12:49 pm

There are a couple issues here. First of all, although you can find an exception in Canadian securities laws for Canadian brokers to do business with US residents that have RRSPs, and the "snowbird" exception, I can find no corresponding exception for a US money manager not licensed in Canada/province to be able to manage IRA's for a Canadian resident. If it exists, I certainly wish someone would send it to me, as it certainlly is in need of clarification.

On the other hand, short of no definitive regulation allowing same, I do find that many US-IRA asset administratiors will effectively wash their hands of any relationship once that investor divulges a residency in Canada (whether they give advice or not), I think this is at the very least prima facie evidence that my interpretation is valid (why turn the business away, if it is legal?). Furthermore, if no exception is necessary, then why does IIROC (regulators in Canada) bother with one for RRSPs (see first paragraph)? That seems incongruous.

As far as your contention that many Canadian residents trade their IRA's with Canadian address' does surprise me, as I am not aware of any such providers (but I know of many that will not), but would assume that they have all neccesary licensing in place to do so. I would love to talk with some of them, as I might have some business for them. Certainly getting more US providers willing and able to do such business would benefit this underserved niche market.

I cannot comment on Nelsona's interpretation, as I am not familiar with it.