Author Topic: Canadian invasion of Texas  (Read 2659 times)

TheOldestYoungMan

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Canadian invasion of Texas
« on: September 30, 2014, 01:11:33 PM »
So my Canadian roomate was mentioning that she had acquired a wee bit of capital due to her natural predisposition towards mustachian principles, but she's not sure what to do with the cash.

As I'm a huge nerd I dove into the internet to see what the rules for a Canadian earning money in the U.S. were.  This is my theory:

As she is earning money in the U.S. and is paying federal taxes on the money, she would be eligible for an IRA.  Open a Vanguard IRA and (almost)fully fund that each year she has earned income in the U.S.; Open a Vanguard Roth IRA and minimally fund that to have it there.  Invest anything over that into a Canadian TFSA across the border to its limit (which is high as it's empty now and she's been accumulating cap space, I LOVE the TFSA).  Once she's back in Canada and has no U.S. earned income from wages, roll the IRA into the Roth IRA to dodge all U.S. income tax on the money, and then the withdrawals from the Roth won't be taxed by Canada or the U.S. (some kind of tax treaty where Canada treats IRA and Roth IRA with the same rules the U.S. does).

She doesn't pay into Social Security, her company pays into the Canadian equivalent (which I think is neat).  She does plan to ultimately go back to Canada, sometime in the next 3 to 5 years.  She also has the short term goal of wanting to save enough downpayment for a house in Canada which is "waay more expensive than down here" -said with the haughty arrogance of youth speaking to her elder.  Her company will "match" any money she saves up to a point, but doesn't care where she saves it.  I have no idea how much that's going to F*** her at tax time but it's how they deal with having so many international workers and being a Canadian company.

I think she should take advantage of the IRA to avoid part of the U.S. tax she would owe.

Her co-workers told her that she can't do an IRA because of her visa status.  She's a TN work visa something or other that means she's a non-resident alien.  I can't find anything in the IRS guidelines that reference a particular immigration status regarding eligibility for an IRA.  She passes the 183 day test for "you're fu**** and you owe the IRS $$"

Reading around online further I found that some IRA providers will collapse the account if you don't maintain a U.S. address.  Anyone know if Vanguard has rules like this?

The excusitis is making her lean towards investing the money in Canada, and the hassle of moving the money back to Canada later might be worth the price, but I just cringe at the potential money left on the table.

So what would you recommend to someone looking to save/invest something around $12k per year, currently living in the U.S. on a work visa and with plans to live in a bunch of different places over the next 30 years or so?  Which broker/firm would you use in the U.S.? In Canada?  What strategy would you use to convert the U.S. investments over to Canada?

I feel like once you're back in Canada you could tap the IRA for the maximum tax-free amount each year, as you aren't earning any other income in the U.S.;  Even if Canada taxes this money wouldn't you have avoided the U.S. taxes on it entirely?  And if you rolled it over into a U.S. Roth IRA and then withdrew it, Canada treats those the same as the IRS, so that's totally tax free right?

I also told her that the TFSA in Canada is the absolute coolest thing ever and she should take full advantage of that, but what company should she open that with, and what does she invest in?  Vanguard ETFs?

She's horribly worried about double taxation, and seems to think that in the RRSP she's got from when she was in Canada she is limited to some sort of government thing that is screwing people over.  Is there something wierd with what you can invest in inside an RRSP account?

Thanks for reading and I appreciate any info.  Somebody needs to get that cap accumulation thing into the Roth IRA rules.  I didn't know shit about investing and tax implications of saving in the right spot when I was 18, and it'd be nice if the contribution opportunity wasn't lost along with the return potential.

RichMoose

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Re: Canadian invasion of Texas
« Reply #1 on: September 30, 2014, 04:42:30 PM »
That all sounds great if she can open an IRA. I would assume that she can because she's earning U.S. wages, but I'm not overly familiar with this. The TN visa is just a temporary U.S. work visa specially designed for Canadian and Mexican professionals.

I agree that she should maximize her TFSA in Canada. It beats the Roth IRA hands down with all of the nice perks. Get her to open a self-directed TFSA through Questrade. She can buy ETF's with no commissions charged on purchases. I would recommend she look at Vanguard Canada's ETF list, but depending on what she wants to invest in, Vanguard is not always the most price competitive. iShares and BMO are worth a look as well.

If she is unable to invest via a IRA, or has money left over to invest after maxing that as well as her TFSA, I would say she should move her money to Canada and invest in a taxable account in Canadian dividend stocks (or dividend ETF's). The Canadian government gives some fantastic tax benefits for this.

Regarding the RRSP, she only really needs to be worried about double taxation if she dies and has a lot of assets. Much of this is very exaggerated and doesn't matter unless she's worth more than a couple million dollars.

Edit: I should mention that she has to have a residency connection or they will tax her 1% per month on new contributions. There are details about this on the governments TFSA website. I'm sure she'll fit the requirements if she's in the US on a TN visa.
« Last Edit: October 01, 2014, 08:47:46 PM by TuxedoEagle »

 

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