Help - How do you invest as a Canadian working in the US?
From my knowledge it seems that stuff like advantaged accounts like Canadian RRSP and TFSA are not meaningful, as the former requires you to be employed within Canada and the latter doesn't work when you qualify as a resident alien in the US (which one does if you are employed by a US entity) since TFSA income is taxed (thereby defeating the purpose of having a TFSA to begin with).
Furthermore US options like the Roth IRA and 401(k) seem to be only be viable if you are planning on working in the US until essentially retirement.
Therefore it doesn't seem like there are any options for a Canadian who is looking to stay in the US for 5-10 years - correct me if I am wrong. How are my fellow Canadians saving and investing money?
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That depends on whether you still desire significant ties to Canada, which means you'll pay the incremental difference for Canadian tax but be able to contribute to RRSPs the eligible percentage of your entire income or whether you are a deemed resident of the US. If you are a deemed resident of the US, you can maintain your RRSP but recommend you move it to TD. RBC will not service your account if you reside in New York as it's a blocked state and they will suspend it. TD has US brokers but they will only allow you to place trades over the phone. My tax consultant recommended I also only hold US stocks and all USD in my RRSP to increase the case for me being a deemed US resident. The TFSA is taxed like a foreign trust so zero tax advantage and is a PITA and requires additional forms. Even your Canadian pension requires disclosure if it's a defined contribution plan with a balance. In sum total - move all your TFSAs and other discretionary accounts, including any profit sharing plans you currently have with a company (even if it means withdrawing at a penalty) into a US account, move your Canadian RRSP to TD and in USD, and only contribute the allowable percentage of your Canadian income (you probably won't have any unless you have real estate rentals etc). Close all your Canadian accounts and only maintain a small CAD balance at your Canadian bank. You can freely invest in a 401k in the US with US income but unlike Canada, any early withdrawal before your 60s leads to a non-refundable withholding tax. If you ever leave the US, you can just leave your 401k in the US and withdraw it in retirement. Also, any investments you liquidate must be before you move to the US and also, you'll owe departure tax on any realized capital gains the year you move from Canada to the US.
Really complete answer. Thanks. Going to be honest - some jargon here I'm not familiar with though.
Some comments:
1) Yes, I still desire significant ties to Canada. I have been working in the US for 3 years and think I have already been paying the incremental difference for Canadian tax in my filings since having started. Does that mean I am able to contribute to RRSPs, and haven't been?
2) The part about filling up with US-only equities is irrelevant if I don't care to be deemed a US resident, correct?
3) Given the TFSA is treated like a foreign trust and has additional complexity with forms, there is no point in filling it is my read off your comment, correct?
4) When you say "close Canadian accounts and only maintain a small CAD balance" - why is that?
5) Got it. So I can contribute in a 401k with US income but effectively any amount I contribute is locked there until I'm 60+ unless I want to pay a withholding tax. Therefore if I only plan to work in the US for say, 5 years total, it doesn't seem too worthwhile? I've been ignoring any employer match but may have been unwise of me.
6) Any point in a Roth IRA for me?
You need a tax advisor, my friend. The company paid for a cross-border tax consultant for me when I moved. It's not a simple matter at all and I'm not an expert. From what I understand, there's very few reasons for you to remain a resident of Canada. Don't even think you can contribute to the RRSP like you mentioned and you're getting taxed significantly higher. Given that everything I was told was under the assumption that I'd NOT be a Canadian tax resident, I don't really have much to offer you in terms of what your rights are as a Canadian resident working in the US. Just don't want to lead you astray. But from what I understand, yes for 5 and yes for 6. Assuming you have to plans to withdraw from your RRSP/401k before retirement, there's no reason to not contribute. It comes off your pre-tax income and lowers both your overall tax rate as well not being charged capital gains tax. As for a ROTH, it's just like a TFSA from my understanding so might as well use it if you're allowed to compound capital gains tax free until withdrawal.
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