Inherited IRA - Dual Citizen Living in Canada

[ExpatAmerican]

A Canadian resident (actually "Provincial Resident" would be more accurate, but will use Canadian as it is easier to explain) has to make sure that the securities held (in any account.. IRA, RRSP, cash account) are eligible for purchase by a Canadian resident. US exchange-traded funds (ETFs) are mostly fine for purchase/ ownership by Canadian residents (they trade on a US exchange, throughout the day, very similar to US closed-end funds, which are typically fine as well). US domiciled open-end funds (funds that do not trade on an exchange, but whereby the shares are redeemed/issued by the fund company itself) are not typically allowed to be owned by a non-US resident. It's stamped right on the prospectus. Another way to recognize the difference is that all US open-end mutual funds have 5 letter symbols, with the last one being an "X." These are almost never allowed for non-US resident ownership. The same thing applies for US residents. They technically cannot own Canadian open-end funds, as these securities are only allowed for purchase by Canadian residents, by prospectus.

I cannot speak for what is in a Pacifica IRA in particular, but all mutal funds in IRA's for Canadian residents should be funds that are allowed for purchase by Canadian residents, which typically means ETFs and closed-end funds of either country are usually okay (exchange-traded is usually the key determinant), but not US open-end funds

You'll notice the words "typically," and "mostly" used here often. That's by design. I do this because there can be exceptions to these rules (but they are few and far between). The simplest rule to follow (to be sure) is to ask your broker if a particular security is eligible for investment by a resident of your jurisdiction, and do it for each and every security.

[nelsona]

Thanks. When you say "The same thing applies for US residents. They technically cannot own [buy] Canadian open-end funds, as these securities are only allowed for purchase by Canadian residents, by prospectus." [and yes, I realize that this is further narrowed to Provincial residents]

Does this include funds within an RRSP held by a US resident? I know many people who have their RRSP with TDW in canada who regular buy and sell Cdn open-end mutual funds. TDW is usually pretty savvy when it comes to this issue, and have lots of US RRSP-holders. Are they "wrong" in letting US residents purchase open-end Cdn MFs?

[dwalkow]

Our firm has some experience with IRAs for residents of Canada. Providing you have a US Tax ID we are able to set up and manage IRAs including pass down IRAs.

[nelsona]

No answer to the question I posed?

[ExpatAmerican]

Once again, this question illustrates why I pepper my responses with "mostly" and "typically."

My comment is accurate, by and large, with the exception of "self-managed" RRSPs by US residents. So, by way of an SEC exemption in 2000, (Canadian) brokers that are not licensed with a US brokerage firm (who were previously not allowed to deal with these accounts) are exempt from such registraton. Moreover, the SEC (also in 2000) further allows such US residents the ability to trade in securities that are not registered in the US (open-end mutual funds). The key here is that the account has to be "self-managed" by the client and the trades unsolicited in nature. So yes, I could see how TD can allow trading (in self-managed accounts) for US residents on the discount side (no advice given). Now with that said, I am not a discount broker. I manage investors portfolios (and the cross-border securities regulatory minefield that we find ourselves in!), and given that I am giving them advice, we stay away from unregistered investments for US residents (as these accounts would most likely not be considered "self-managed"). This poses no serious problems for us, as the proliferation of Canadian exchange-traded funds (which are mostly all blue-skyed in the various US states as acceptable for US resident purchase) allows us to deliver very diversified portfolios to these clients, with the added benefit that ETFs almost always have substantially lower fees.

Finally, the purpose of SEC regulations otherwise not allowing non-US registrants (the Canadian brokers) from dealing with US residents and prohibiting these residents from buying unregistred securities is for their (the clients') ultimate protection. I think that these laws make sense. Just because these exemptions exist doesn't mean that those same risks (unregistered registrants and unregistered securites) somehow magically disappear because it is an RRSP. Hence, a fully-registered advisor in the clients' jurisdiction and owning fully-registered securities would seem to be more in line with both the spirit and letter of prevailing securities laws.

[nelsona]

Thanks EA, I really appreciate this detailed answer.

I too, over the weekend read somne TDW documentation on this subject and came across the "allowed to deal non-SEC registered investments" clause wording, which suggested to me, and you confirmed, that SDRSP clients can buy open-end mutual funds.

On ETFs: Are there such things (in canada) as no load ETFs, as there are in US (Vanguard, etc)?

[ExpatAmerican]

Well, ETFs are just like stocks and other exchange-traded securities. So you buy them on the exchange, so there is no "load" per se, as you would find with an open-end mutual fund (some funds are no-load/back-load,etc.)

So in a transactional account, you would pay your broker a commission to buy and sell it like any other stock, or in a fee-based account, there would be no upfront or backend commission, just the ongoing managment fee to manage the account.

Regarding Vanguard, they have no-load open-end mutual funds, and they have ETFs, which one would buy/sell as described above.

[nelsona]

Vanguards ETFs are also no-commission if bought thru vanguard.

[ExpatAmerican]

Interesting.. I never knew that.

[nelsona]

So I'm guessing no Cdn brokerage is making this type of offering....