Managing IRA Account From Canada

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Bill
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Managing IRA Account From Canada

Post by Bill »

I am a US citizen and have been living as a landed immigrant in Canada for 16 years. At the time I moved to Canada, I had an IRA account with a mutual fund company. I left it where it was and it's been accruing value since. I haven't added anything to it as I have a RRSP account in Canada. I recently decided that I should diversify my IRA. The MF company with which I have my account does not offer the kind of fund I want and so I called a different company to inquire about the procedure for transferring a portion of my account to them. I was told that they wouldn't take me if I used a foreign mailing address - something to do with the Patriot Act. I haven't had a US address since I moved. The company with which I am currently investing doesn't seem to have a problem with my foreign address. How can I manage my IRA from Canada? The investment I made in 1985 isn't entirely appropriate in 2004.
us1234
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Post by us1234 »

Perhaps you could try other companies. TD Waterhouse being owed by a Canadian bank is sometimes ahead of the curve in helping with cross-border issues. They do have a self-directed IRA which means that if they will take you on, you should be able to put your money where you want to.
Bill
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Post by Bill »

Thanks for the suggestion, us1234. Unfortunately, several years ago TD Waterhouse, along with most other US brokerages, terminated the accounts of all their clients with Canadian addresses. This was well before 9/11 and had nothing to do with security. As I understand it, it was done because the US brokerages were not formally licensed in the various provinces in which their clients were living and were reminded of that fact by the Canadian government at the urging of Canadian brokerages. Many Canadians and permanent residents like myself had our accounts cancelled, so I already know this is not an option. I know that there are some US brokers who are willing to take on customers with Canadian addresses, at least there were before 9/11, maybe not now. These would be full service brokerages who would want clients that actively traded - not something I am looking to do. This would be the first change I made in more than 16 years. Thanks again for your comments.

I'm wondering if mine is a fairly unique problem since no one else seems to have had a similar experience or if it's just one that nobody's really figured out how to solve.
Mark T Serbinski CA CPA
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Post by Mark T Serbinski CA CPA »

Your problem is not unique.

Although the issue of Canadian RRSP investments held by U.S. residents has been substantially dealt with by allowing trading in Canadian RRSP brokerage accounts, the same has not been done for IRA accounts.

The issue is an SEC rule which prohibits the use of a broker outside of your country of residence. This rule is intended to protect brokers in each country from international discount brokers which could destroy their business.

We are currently looking at this problem on behalf of a number of clients, and will keep our results posted on this forum.
nelsona
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Post by nelsona »

Additionally, the Securities Commission for your new province of residence ALSO has something to say about these arrangements, as they must oversee any trades made by residents of your Province.

A Schwab broker down in Tuscaloosa is hardly going to be licensed to carry on activities in Ontario.

He needs to be, or at least needs to come to some sort of compliance arrangement.

As Mark said, this mirrors the situation that Cdns living in US with RRSPs faced.

First, the SEC had to buy off on permission, then the state in which the Cdn resided, and finally the Cdn broker/dealer had to come into complinace with the rule for that state.

Took about 5 years to get done. And a couple of states are not finished yet![:(!]

And there is certainly less pressure to get your situation addressed, as there are 1000's more Cdn in US than vice versa -- Although with the recent influx of Anti-Bush emigration from US to Canada maybe the numbers will warrant more attention[:D]




<i>nelsona non grata</i>
Bill
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Post by Bill »

Thanks for your input, Mark and nelsona. You both suggest that this is based on brokerage/SEC issues and not connected to anti-terrorist legislation. I attempted to open accounts directly with two mutual fund companies into which I would have transferred a portion of my current IRA. Representatives at both companies specifically cited Homeland Security and the Patriot Act as the reason they wouldn't let me do it from a foreign mailing address.

Although all my non-IRA investments are now held in my Canadian brokerage account, when I first moved up here, I had investments in US mutual funds outside of my IRA. On two occasions I opened new mutual fund accounts and moved funds from one company to another. They allowed me to do it because I was a US citizen who had a SSN and filed a US income tax return. That was long before 9/11. My IRA is currently being held by a mutual fund company, unattached to any brokerage, although I originally purchased it through a full service broker. Until a few years ago, I used to receive letters on a regular basis from my old broker soliciting me to bring my IRA account back. Maybe I'll give him a call and see what he says. I'll post what he tells me.
nelsona
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Post by nelsona »

Your experience highlights the final step in being able to manage an IRA from Canada.

Even after all the hurdles from SEC, OSC, etc are crossed, you still have to find a willing broker.



<i>nelsona non grata</i>
Nephandus
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Post by Nephandus »

Hi Bill,

I'm in a similar boat. I'm a Canadian citizen who lived in the US for 3 years, where I acquired an IRA.

I've just moved back to Canada and don't know what to do with the money I earned in the US IRA. I'm dealing with a big box financial company, and they are having trouble setting up their systems to work with my Canadian address. It's impossible to do online - while they still offer provinces in their choices, their system is stumped with Canadian postal codes, even when they do it manually. Still, I can physically manage the money from Canada through the Internet. But I don't know if this will have some unknown tax implication down the road.

I would like to roll the money over into my Canadian RRSP. I understand there is a way to do this tax free, but so far the people at the US financial company, my current benefits company in Canada, and my bank in Canada are all stumped.

As the time on 2004 ticks away, I'm wondering if my window is closing. I had a long period of unemployment in 2004 so my income will be lower. If there are any tax implications, this would be the year in which I would want them to hit.

Any ideas?
nelsona
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Post by nelsona »

"I understand there is a way to do this tax free, but so far the people at the US financial company, my current benefits company in Canada, and my bank in Canada are all stumped."

This is understandable, but let me clarify that it will not be a 'tax-free' withdrawal.

What it will be is a fully taxable and penalizable withdrawal in US, BUT, and includable as income in Canada with CRA granting full credit for the US tax, PLUS granting the deduction for transferring the
funds to an RRSP.

So, if you have sufficient other income in a year, then the RESULT is 'as if' one transfers it tax-free. The IRS gets its tax and CRA gives credit for it against other income.


It hinges on the fact that foreign taxes paid income included due to Section 60(j) of the Cdn tax code, need not be tied to its source, ie. if other deductions make that particular income deductible, the foreign tax credit can be used towards any other income.


One cavet, however is that, this requires that you have sufficient other income to use up the tax credit completely. So an $80,000 IRA woud require at least $60-70,000 other cdn income, more if there were an IRS early-withdrawl penalty attached

<i>nelsona non grata</i>
nelsona
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Post by nelsona »

It should also be pointed out that there is no tax advantage for doing this (re-patriating the funds to Canada), as opposed to leaving it alone in US IRA account and collecting it when one retires

The only reason to do this is if (a) one can't deal in ones IRA anymore because of securities laws, or (b) if one will use the funds from the RRSP in one of the 'approved' methods of tax-free withdrawal, that is not available from a US IRA. The HBP plan is one for example.

But if you plan to use these for retirement, and your US account manager is willing to deal with you, then leave them alone.

<i>nelsona non grata</i>
Bill
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Joined: Fri Dec 10, 2004 2:56 pm

Post by Bill »

Just an update to my post of 19-Dec. A call to the broker with whom I'd had an account when living in the US turned up the fact that he'd gone on to his Greater Reward a few years ago - no wonder he'd stopped sending me letters of solicitation. I spoke with a partner in the same office. He didn't think any new security legislation (as in Homeland, not investments) would prohibit US citizens from managing their IRA accounts from a foreign address. This was off the top of his head since it wasn't a subject with which he normally dealt. He's going to look into it and get back to me. I will post again when I hear back from him.
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