Best plan for US retirement accounts after moving to Canada

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EKFS
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Best plan for US retirement accounts after moving to Canada

Post by EKFS » Sun Dec 09, 2012 9:15 pm

I am a dual US/Canadian citizen and I moved back to Canada about two years ago after going to school and later working in the US for 5 years. While I was working, my employers made contributions to a 401(a) and 403(b) (Both through TIAA-CREF), and unfortunately I didn't look into whether I should roll them over into an IRA before I moved back to Canada (which after a little Googling now appears might have been a good idea, depending on who you ask). I'm now trying to figure out what the best plan is for the accounts now that I am a resident of Canada. My plan at this point is to remain in Canada for the foreseeable future. I'm 30, so not exactly close to the cut-off for the 10% early withdrawal penalty.

It seems like I can leave the accounts as-is if I want to (TIAA-CREF did not freak out when I changed my address), but I'm not sure if there is a better option, or what the long term implications of this will be. As an alternative, should I be trying to convert these to an RRSP (and can I do this as a lump-sum under section 60(j)?) and/or cash them out in a year when my Canadian tax burden is particularly high so I can take advantage of the Foreign Tax Credit on the withholding tax and/or penalty? Are there any other options at present?

Any advice would be much appreciated.

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Post by ExpatAmerican » Mon Dec 10, 2012 1:23 pm

If you are looking for a "legal" answer to your question on what should be done with your TIAA-CREF accounts, then you should ensure the following:

1. Make sure that the investments in the accounts are legal investments for a resident of your province. Many times TIAA-CREF will have their clients invested in US-based open-end mutual funds, which are only eligible for investment by US residents (it's right in the prospectus).
2. Make sure that your brokerage firm and the individual at the firm that you liaise with are both licensed to transact securities business with a resident of your province (I would suggest to you that TIAA-CREF is not licensed to do business with residents of any province).

As far as implications go, you might also consider, if you are planning to live in Canada ad infinitum, then you would be better served with Canadian-based investments in that account.. something that would be hard to come by at TIAA-CREF, I would suspect.

No need to waste precious qualified plan dollars (IRA/TIAA-CREF) paying penalties and taxes with an IRA to RRSP conversion. Just transfer it to a broker/brokerage firm who is licensed in your province and is US licensed for qualified plans (IRAs, etc.)

Darrell Thompson at Macquarie Private Weallth Corp. in Toronto, is licensed in all these jurisdictions and can deal with qualified plans (IRAs) held by Canadian residents. He can be phoned toll free at 866-775-7704 or emailed at darrell.thompson@macquarie.com.

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Post by nelsona » Mon Dec 10, 2012 2:47 pm

It should be pointed out that retirement funds based in US enjoy a similar "privilege" with respect to Cdn residents as do Cdn-based retirement accounts of US residents. This includes the ability to own and trade mutual funds that are intended for "residents" only.

[For example, a self-directed RSSP held at TD waterhouse by a US resident, is not precluded from owning and trading Cdn mutual funds -- and the same can be true for US brokers with respect to Cdn residents and US-based mutual funds]

Thus the ease at which one can hold or trade these funds, or even mainatin an account then, realy falls under the perogative of the broker.
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ExpatAmerican
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Post by ExpatAmerican » Mon Dec 10, 2012 3:21 pm

Interesting. I was aware of the SEC exemption granted non-US licensed Canadian brokers when dealing with the RRSPs of US residents. As well, they (the US resident RRSP holder) receives an exemption at the securities level on being able to own Canadian-domiciled mutual funds (that otherwise would not be registered for purchase by a US resident).

In the other direction, US brokers are not granted the same exemption to manage IRAs for a Canadian residents. They need to be registered in the respective province. I am not aware of any "securities exemption" for US open-end mutual funds owned by a Canadian resident (even in a tax sheltered IRA). If you had any additional info on that, I would appreciate it.

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Post by nelsona » Mon Dec 10, 2012 3:37 pm

I'm of the opinion that National Instrument 35-101, among other regs, has long allowed US brokerages to deal with Cdn residents with US retirement funds, subject to its terms. The OSC and other provincial regulatory agencies have subscibed to this policy for several years.

This is what permits fimrs like maquarrie and pacifica to do what they do -- and allows TD waterhouse to do what they do. The only thing special about those maquarrie and pacifica is that have set themselves up to handle BOTH sides of the reciprocity agrement.

But US firms have since early in the last decade been allowed to adopt the "waiver'.

Am I missing something?
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Post by nelsona » Mon Dec 10, 2012 3:38 pm

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Post by ExpatAmerican » Mon Dec 10, 2012 4:02 pm

No, I don't think that you are missing anything. In the real world, though, this broker-dealer exemption is so fraught with risk, that every firm that I have been associated with will only allow such business to be done, if in fact the broker is registered. The amount of Compliance effort necessary so as to be "comfortable" that all this minutae of regulations are in fact covered off (and continue to be, going forward) is so incredibly involved, that firms typically will just say "if you are not licensed, you cannot do business there."

This type of heavy-handed US regulation reminds me a lot of PFICs. US Persons can own foreign securities, but they make it so incredibly difficult and expensive to do so, that you might as well forget about it. The same thing with the broker-dealer registration. Technically, there is a workaround, yet effectively, it is cost-prohibitive.

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Post by nelsona » Mon Dec 10, 2012 4:05 pm

These are Cdn regulations.
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Post by nelsona » Mon Dec 10, 2012 4:09 pm

As I said, it becomes the perogative of the firm.

Perhaps, like 98% of Cdn brokerages, the US firms CHOOSE not to avail themselves of the option.
But, from a legal, regulatory point of view, US firms can do exactly what TD Waterhouse does for their US-resident RRSP-holders, which vcan include providing trading of US-based mutual funds for Cdn resident sheltered planholders.
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ExpatAmerican
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Post by ExpatAmerican » Mon Dec 10, 2012 4:17 pm

Yes, the dealer-registration issue is. Still could not see a security exemption in NI 35-101 (I don't think that 2.1(b) covers it). Through experience I know of 2 very large clearing brokers who will allow US open-end mutual funds for US residents (in an IRA), and when that US resident changes his address to Canada, we get pressure to sell these (now supposedly illegally held) securities. Could be "institution-specific" I would suppose.

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Post by nelsona » Mon Dec 10, 2012 4:54 pm

sure.

and I only quoted NI 35-101. There may be others (NP 11-203 perhaps)

Out of my pay-grade, I'm afraid.
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Post by DrJFM » Wed Jun 05, 2013 7:15 pm

This thread is a bit aged, but assuming others may hit upon it still, like I did, I wanted to offer my experience as dual citizen living in Canada with an IRA in US...
I will assume that ExpatAmerican will or has flopped his 401 etc funds into a regular IRA account. (Or for others who have an IRA set up already)

With enough talking, you can convince TD Ameritrade that it is legal and OK for them to let you have an IRA account w them. This may require a lot of phone calls to supervisors and most likely would require a visit to a US office to get the account opened and money rolled into it from any other plan.
If you get this far, you can get full web access!

I trade almost daily via their internet portal (even do covered calls) and believe this is one of the few firms with whitch you can get this type of access from Canada.

There are a few cross border firms that I may turn to, but trading online for $9.95 a trade would be hard to give up.

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Post by michaelthef » Mon Jun 17, 2013 11:23 pm

Just to add to this, Fidelity seemed to have no issues allowing a Canadian resident to keep a US IRA and trade it. They were fully aware that I had moved to Canada from the US and had no problem with the international address. Didn't require any discussion/arguing.

As others have pointed out here, TD Waterhouse also has no issue with Canadians living in the US keeping their RRSP's and trading them.

One question is, is it OK to hold Canadian mutual funds in the RRSP while a US tax resident? I thought read somewhere that best to avoid mutual funds and stick to securities do to some complexity...

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Post by nelsona » Tue Jun 18, 2013 9:04 am

MFs are fine, because RRSP/RRIFs are exempt from the PFIC issues that non-retirement account holders face.
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