TN/potentially GC need advice on 401K vs. Roth401K and HSAs

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poutine
Posts: 6
Joined: Fri Mar 09, 2018 6:30 pm

TN/potentially GC need advice on 401K vs. Roth401K and HSAs

Post by poutine »

My spouse and I (early 30s) are both on TNs and have been in the USA for two years. Both our employers have started the GC process, but we aren't sure if we will stay in the USA or return to Canada at the end of our TNs in 2021.

It is open enrollment time, and we need to select our health plans, FSA, etc.

[b]Roth401K vs 401K[/b]
We currently have a combined ~$50k in 401Ks, and were planning to max out our 401Ks again this year. Mega-backdoor Roth IRAs are not an option with our employer. Assume that there is no employer match. We each have RRSPs that haven't been touched since we left.

Reading this forum, I'm wondering if switching to Roth401K is a better choice if we plan to go home. If I understand correctly, when we are retired, the 401K withdrawals will be taxed by both countries, but the Roth401K will be taxed by neither (please confirm?)? The only caveat is that we are in the 32% tax bracket (2018 brackets), and contributing to a 401K could get us back into the 24% bracket.

If we return to Canada, we may do an internal company transfer. Can I convert the 401K to an IRA (and then maybe Roth IRA) if I'm still employed? Will I actually be able to find a broker that will let me do trades in the account once I'm no longer a resident? Our employer's broker already confirmed that they would liquidate the 401Ks when we leave the country, so I will need to move them to a different broker.

My original plan was to convert our 401Ks to RRSP when we return, but it sounds like that might be difficult if our Canadian income isn't high enough. Can I roll it over a few years after our return once our Canadian income has increased?

If we end up on GC, should any of this strategy change?

[b]HSA[/b]
Is this ever a good choice if we plan to eventually return to Canada? Could it be used after we return for Canadian expenses? Does the CRA see it as taxable? We expect $30k (that's not a typo) in dental costs in the next 5 years, but we don't know which country it will happen in.

[b]RothIRA[/b]
I did a backdoor Roth IRA for both of us last year. Is this difficult to maintain from Canada? Will I be able to find a broker that will allow trades as a non-US resident?
MaggieA
Posts: 150
Joined: Sun Oct 31, 2004 4:06 pm

Post by MaggieA »

My family spent 15 years in the US, returned to Canada in 2016 with US citizenship, 401(K) and Roth IRAs. I kept my US job; employer transferred me to their Canadian payroll. Here's my experience that may be applicable to you:

Before leaving US I asked about rolling over my 401(K) into a Roth IRA, as I'd rad that could be advantageous, but was told I could not do that because I was continuing in employment. Actually, I think that was only true up until the point of my departure (so I didn't have a window of time in which to move the account). Once back in Canada, as far as the 401(K) was concerned I was a terminated employee, because no longer working for the US employer, even though working for the Canadian branch. I have been able to roll over my 401(K) to an IRA, from Canada.

Roth IRAs you can keep and avoid Canadian taxation, but you have to send a letter about them to the Canadian Competent Authority, and you MUST not contribute to them once in Canada.

The difficulty with maintaining IRAs (both kinds) from Canada is finding a broker with US licensing who will work with you. I've seen several mentions on the forum here of people opening self-directed accounts with TD Ameritrade. What I ended up doing (and fairly recently, so I can't report on long term success of this approach), is working with an advisor at Raymond James. They have a US licensed subsidiary that can hold IRAs, so my guy, who is Canadian based, US and Canadian licensed, is able to manage both our US (IRAs) and Canadian (RRSPs) retirement savings in a coordinated fashion. That's the theory, anyway. I'm trying it out as a replacement for my past strategy of self-directed neglect.
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