What to do with our US Investments?

What should be the best approach for our US Investments, the 401, Roth IRAs etc before moving to Canada?

Not a financial expert (far from that), but it really depends on you and what your company allows you to do with your 401k. Some companies (and the third party company who runs the investment account) will have certain clauses on when you can withdraw/close the account or keep it running. Best to call and ask the third party company.

Thanks avj, did anyone had contact with the US Canada cross border accountant on that queston? many thanks,

My tax consultant told me I will be paying through my nose in taxes and penalties if I liquidated by 401k (30-35% of it will be lost according to him).

Got it, was thinking to open a Roth IRA account and convert my 401k into Roth IRA, then take a lump sum of it after keeping roth IRA for 5 years. but roth ira seems tricky in the case of Canadian tax .

Can you ask him why?

You should be able to transfer your 401k(not really 401k but an IRA) into a RRSP with no net adverse tax consequences.

Sure you’ll owe the IRS tax as the withdrawal is treated as income as well as an additional 10% early withdrawal penalty but you’ll get a tax credit for this amount from CRA.

The only thing that’s needed is for you to have enough Canadian income tax owing to apply the credit against. The credit doesn’t carry forward so that bit is important.

Can it be transferred to RRSP account even if you are not eligible for RRSP contribution this year?

Yes, it doesn’t take up your RRSP contribution room but creates new room.

You must either contribute in full or lose the room for whatever portion you don’t contribute.

This year it’s a little easier due to the CARES act where you don’t incur any holdback.

Got it. That’s great. I didnt know we could do this. Do you happen to know what the procedure is? Is it just like transfer within the US? E.g. ADP sends a cheque to you and you deposit in your RRSP account?

Yes, that’s the jest of it.

This has more details and also this. Be sure to do the math on this in terms of your Canadian tax liability for the year when you do this.

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Great. Thanks for sharing the details. I have withdrawn my IRA money already with the CARES act in place, so have to see if there is any way I can do this now.

So as long as you have the CAD equivalent of that available in a savings account in Canada you should be able to put that in a RRSP account. There are no time bound constraints except that these two transactions must happen in the same tax year.

If you don’t mind me asking, what was your plan with the IRA withdrawal? Had you originally planned to become a tax fugitive with the IRS :stuck_out_tongue_winking_eye: or did you just plan to pay the penalty and eat the losses?

Lol. I have no income in the US this year. I had to move to India last year due to a visa issue. I’ve had some legitimate financial needs owing to COVID-19 and on top of it the move to Canada without a job. With the CARES Act, I was hoping I wouldn’t have to pay the 10% penalty, just the income taxes in a year when I had zero income in the US. That was the rationale. But it’s good news if I could still put this money in RRSP this year.

Although, now that I think about it, I may not be at an advantage here. I just started work here earlier this month, so there’s no way I would have enough tax payable to get a credit :frowning:

Additionally, based on what I have heard so far, one needs to have a US address in order to maintain 401k
You can probably manage a couple of years but for long-term, one needs to withdraw anyways, isn’t it?

I’m not sure and haven’t looked into that closely. I suspect that this will depend on the plan administrator for your employer with which you had the 401k.

You can always roll that over into an IRA after termination of employment, so I don’t think that matters too much.

You definitely don’t have to withdraw it and create a taxable event, unless you want to or choose to.

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I actually changed my 401k account address to my Canadian address and its been fine so far. You file a form stating that you are a non resident of the US. Like others have mentioned, it’s not a good idea to cash out 401k.

It’s not true for all providers. I rolled over my 401k to an IRA account at WealthFront. They said they can’t administer the account anymore if I am not residing in the US.

I have mine with fidelity and even they said they don’t “serve” (open account, buy/change investments etc) customers who are non US residents but you can continue to keep your existing investment in 401k account until you decide to sell them and they will not forcefully liquidate them (I think this is coz they can’t legally do this, may be). This is how most people are able to keep their 401k after they have left the US, I believe.

That’s a great point, this is indeed broker specific.
I had no issue with Schwab in converting my 401k to an IRA. The 401k was at Fidelity and I had a poor experience with them. They wouldn’t ship the check directly to Schwab nor would the add the additional information onto the check that Schwab asked for.

I was able to have the check shipped to me in Canada and then mail it out to Schwab who promptly deposited into the IRA.