ONCE THE PLAN PARTICIPANTS RETURN TO CANADA, THEY MAY CONTINUE
TO ENJOY TAX-DEFERRAL BENEFITS OF THEIR IRA, 401(K) PLAN AND
ROTH IRA BALANCES JUST AS IF THEY WERE STILL U.S. RESIDENTS.
individual investors and registration requirements for dealers. So,
they let this business go and ask for the accounts to be transferred
to another firm.
The taxpayer left in the lurch must then search for an institution
that will take on a new account for a Canadian resident, and
this can be an ordeal. Usually, Canadian investment firms cannot
open IRAs because these are U.S. plans. It is possible for IRA proceeds
to be moved to an RRSP, but that’s the exception rather than
the rule.
There have also been situations involving Canadian expatriate
executives who participate in their employer’s 401(k) plans. While
the 401(k) can be moved to an IRA, the employee and their HR
department may be surprised to learn that the 401(k) provider
will not roll over the plan to an IRA when the participant retires,
as is commonplace for U.S. employees.
Likewise, Americans working in Canada face similar challenges
when they return home. While Canadian investment firms have
the ability to manage RRSP and RRIF plans for U.S. residents
in most states, not all firms will. Why? This ability was primarily
intended for Canadian snowbirds, not permanent U.S. residents.
Unless they are licensed, registered and able to do business in the
United States, Canadian financial advisors are not permitted to
advise and solicit trades from U.S. residents in their non-registered
accounts.
If that isn’t enough, another problem can arise, too. Some investments
are not portable across the border. For example, people
who invest in mutual funds cannot hold them outside their original
jurisdiction; U.S. mutual funds cannot be held by Canadian
investors, and vice versa. In many cases, when an investor moves
back to Canada they are forced to liquidate, and must face a tax bill
on any unrealized capital gains. Other investments, such as shares
traded on the NYSE or NASDAQ, do not have this issue. So, the
choice of investment type becomes critical for the ex-pat investor
if they wish to minimize their tax bill and avoid complications.
It is estimated today that over one million Americans live and
work in Canada, and an even larger number of Canadians live and
work in the U.S. Thus, these financial issues affect a lot of people.
The solution? Have the human resources professional and expatriate
staff member consult with a financial advisor who is familiar
with cross-border investment issues, and licensed to do business
in both countries. n
Darren Coleman is an investment specialist with Coleman Wealth of
Raymond James Ltd. in Toronto.
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