Canadian plan to move back to Canada after years working on TN

[frank]

I am a Canadian and I have worked in US since 2007 on TN. I plan to move back to Canada for retirement in 1~2 years. I have 401 (k), HSA and stock broker accounts. what I need to do with my 401(k) and HSA account before I leave US? Thank you very much for your help!!

[nelsona]

Your stocks and ETFs held in your brokerage account will need to be transferred to a Cdn broker. Any mutual funds will need to be sold. in any case, you will want to sell any losing positions before leaving.

Your 401k and HSA can remain as is, but be sure that the firm you are dealing with allows Cdn clients. Otherwise you will -- before leaving US -- find a firm that will, and transfer the funds there. your 401k would then become a IRA. Just a note that IRAs are not eligible for spousal pension-splitting in Canada, but 401(k) are.

[frank]

Thank you so much nelsona!

if I need to transfer Stock and EFTs from my brokerage account to a Cdn broker, is the Cdn broker must be in Canada? if I have some gain on some stock and EFTs, does my current broker allow me to transfer the stock and EFT to a broker in Canada without selling them? if it does allow, do I need to pay US tax on capital gain if I sell them from Cdn Broker in the future?

when you say 401 (k) is eligible for spouse-splitting in Canada, does it mean if I withdraw from my 401(k), for example $10000, in the future, I can split a half ($5000) to give to my spouse and count that as her income for tax purpose?

[nelsona]

Transfers to another broker are not considered sales, so there would be no taxable event at that time. Once you are no longer taxable in US (since you are not a citizen) you will noy be taxed in US on any gain.

Canafa allows pension-splitting, which is as you descibe.

[frank]

Thank you so much for your response nelsona!!

I have another question regarding capital gain. for example, I bought a stock cost $10/share, When I do transfer to Cdn Broker, it is $15/share and I sell it $20/Share in future in Canada. Which is considered the capital gain when filing Canada tax ? is it ($20-$15) = $5 or ($20-$10) = $10?

[nelsona]

All your assets are considered by CRA as sold and bought bask the day you arrive in canada. This is called deemed acquisition. That is why you sell losers before leaving and keep winners until after.
In your example the gain for Cdn purposes would be $5.

[MaggieA]

Regarding the 401(K), if you move it to an IRA then you can also move the IRA to a cross-border licensed Canadian manager. That allows you to actively manage the IRA from Canada, i.e. trade investments in it. If you leave it under US management you almost certainly won't be allowed to do that because securities laws forbid it.

If you have enough time to do this, and depending very much on your tax brackets before and after retirement, it may be to your advantage to get your 401(K) into an IRA and then transition it to a Roth IRA, all before moving to Canada. I believe the transition to Roth will cause an income tax hit in the US, but probably a lot less than the tax you'd eventually pay in Canada. This seems to be a commonly-recommended strategy. Note that upon moving to Canada, if you have any Roth IRA(s) you should file an election with the Canadian Competent Authority, and that will cause the growth in your Roth to be tax-exempt in Canada just like in US - so long as you never contribute to it while resident in Canada.

Although the loss of the income-splitting option on 401(K) withdrawals is a consideration, an IRA has the advantage that if you ultimately leave it (or what's left of it) to a beneficiary, your beneficiary has 10 years to withdraw the proceeds, which avoids a big tax hit for your estate/beneficiary in the year of your death. Also, you may have other income that is eligible for income-splitting with your spouse, on your Canadian income tax return. US Social Security qualifies, for example. This may soften the blow of not being able to split IRA withdrawals.

In my own case I moved back to Canada pre-retirement and kept working for my US employer, which meant I really didn't have the opportunity to do anything with my 401(K) prior to the move. I ended up moving it to an IRA and getting it under Canadian management later on. It's very wise of you to be thinking about your options well in advance.

Finally, since you've only been in the US since 2007 and now you're looking at retirement in 1-2 years, you most probably had a fair bit of working history in Canada before your move to the US, and therefore in retirement you'll probably be eligible for CPP and OAS, you likely have RRSP and/or Canadian pension eligibility, as well as US Social Security. Be aware that SS is clawed back if you get CPP and/or any private pension income. This makes the complicated choice of when to take SS/CPP/OAS even more difficult. Check into the "Windfall Elimination Provision". There are some threads about it on this board too.

[Grad467_2]

"If you have enough time to do this, and depending very much on your tax
> brackets before and after retirement, it may be to your advantage to get
> your 401(K) into an IRA and then transition it to a Roth IRA, all before
> moving to Canada. I believe the transition to Roth will cause an income tax
> hit in the US, but probably a lot less than the tax you'd eventually pay in
> Canada. This seems to be a commonly-recommended strategy. Note that upon
> moving to Canada, if you have any Roth IRA(s) you should file an election
> with the Canadian Competent Authority, and that will cause the growth in
> your Roth to be tax-exempt in Canada just like in US - so long as you never
> contribute to it while resident in Canada."

Thanks for this information.

[nelsona]

An inherited 401(k) would enjoy the same 10-year withdrawal period, so this should not be a consideration in choosing to switch from 401(k0 to IRA.

[MaggieA]

Thanks for the correction, Nelson. I didn't realize a 401(K) could also be left to a beneficiary in that way.

[frank]

Thanks for the information, it is very helpful.

do you know any Canadian broker can accept stock and ETF account transfer from my US broker? I prefer to keeping the account in US$ after transfer, is this allowed to keep in US$?

also I check with my US broker which allows me to keep my 401(k) and HSA as is after moving back to Canada. if I withdraw my 401(k) in future in Canada, should I need to pay US tax for the amount of withdrawal?

thank you!

[nelsona]

I see no reason why US stocks would not be transferable, since they can normally be brought by ant Cdn, and kept in US denomination; check with any Cdn broker about the specific ETFs you are holding about transferring. The Cdn broker will be the one initiating and pushing for the transfers in any event. Pick one, and get planning. Just remeber to sell your losers before leaving.

[frank]

nelsona wrote:
> I see no reason why US stocks would not be transferable, since they can
> normally be brought by ant Cdn, and kept in US denomination; check with any
> Cdn broker about the specific ETFs you are holding about transferring. The
> Cdn broker will be the one initiating and pushing for the transfers in any
> event. Pick one, and get planning. Just remeber to sell your losers before
> leaving.

Thanks, Nelsona! "Sell the loser before leaving." Since only $3,000 in capital losses can be deducted on tax filings each year, what’s the advantage of selling the portion of losses that exceed $3,000?

[nelsona]

Well, for one thing, your cost basis for Cdn purposes is reset when you arrive in canada, do you want to end up paying CDn tax on an investemnt which over all lost money?
Second, if indeed your losses are more than $3000, you can harvest some gains (say, from the ETFs you can't transfer,) lowering your future tax bill.

[frank]

nelsona wrote:
> Well, for one thing, your cost basis for Cdn purposes is reset when you
> arrive in canada, do you want to end up paying CDn tax on an investemnt
> which over all lost money?
> Second, if indeed your losses are more than $3000, you can harvest some
> gains (say, from the ETFs you can't transfer,) lowering your future tax
> bill.

Thanks, Nelsona! I plan to keep my 401(k) with my U.S. broker. When I withdraw funds from my 401(k) in the future, will I need to pay U.S. taxes on the withdrawal? If so, can I claim a capital loss for the portion exceeding $3,000 from the 401(k) withdrawal?