Dual US-Canadian, returning to Canada - What happens to my Vanguard 401k?

[WithBrio12]

Pieces of this question have been asked already, but I would love any advice or recommendations this group has...

We have a small nest egg invested in an employer-based 401k with Vanguard. I'm leaving that job next week for a new Canadian role, and trying to figure out a few things:

1) Will Vanguard immediately force us to cancel / sell the 401k since I am no longer with that employer AND no longer a US-resident?

2) If so, I'd like to bring it over to a Canadian RRSP (so I can continue to contribute and in preparation for a future house purchase later this year). Who are the actual people who understand the tax implications of this (my Google'ing tells me we'll pay the 10% early withdrawal plus a withholding tax that may or may not come back through tax credits when we file.... but this makes my head hurt and has me here, asking the internet for help!!)... CPAs? Tax people? How do I find these folks without just paying a bunch of money for something I could have Google'd myself??

3) Once money is on the Canadian side, what should we invest in?? Is there a way to get my beloved Vanguard index funds again?

Really appreciate this forum and all suggestions!!

[daverobev]

Hi,

very quick use of a 'search engine':

https://duckduckgo.com/?q=transfer+401k+to+rrsp&ia=web

First link looks promising https://www.manulifeim.com/retail/ca/en/viewpoints/retirement-planning/transferring-a-401k-plan-and-ira-to-a-canadian-rrsp

https://duckduckgo.com/?q=401k+moving+to+canada&ia=web

This might also be interesting https://help.taxesforexpats.com/article/532-is-a-canadian-rrsptfsa-reportable

AFAIK you won't want to touch any Canadian ETFs because the US doesn't like them. Good news is you can buy US ETFs in Canada.

Also you probably won't want to open a TFSA because of PFIC stuff.

I don't believe retirement accounts will be closed just because you leave the country, no. I can't find anything saying they will be, and while normally yes banks etc can refuse to do business with expats that isn't really the case with pension stuff - they have an obligation to keep the account open.

Edit - I take that back, I don't really know US accounts, perhaps they can close them after all - reading some more eg https://old.reddit.com/r/PersonalFinanceCanada/comments/ekcwg1/what_to_do_with_401k_when_moving_back_to_canada/ they are suggesting you 'roll it into a Roth IRA before leaving the US' because you can't do any purchases after leaving?

Edited to add - and because it's a pension-like 'thing' it won't be taxed in Canada until you withdraw from it, so no worries there either. https://www.swanwealthcoaching.com/blog/2021/05/21/is-your-401k-taxable-in-canada

There are lots of Americans in Canada and vice versa so it should be pretty easy to find this all out, and there are at least a few Americans on this forum living in Canada, so hopefully someone with possibly more salient info will be along shortly.

Good luck!

(Links are just search results, not recommendations for the services they provide, I am not an accountant etc etc!)

[FLBiker]

I'm a US citizen and Canadian permanent resident, living in Canada.  My experience with Vanguard has been that they aren't willing to hold accounts for US citizens who are residents of Canada.  The exception has been my 403b, which is technically held by a third party (even though it is Vanguard-branded).  I didn't have a 401K with Vanguard, so I can't speak to that specifically, but I did have both a taxable account and a Roth IRA.  I moved the taxable to Questrade and the Roth to TD Ameritrade, and I've been happy with both.

That said, I don't think that Vanguard would necessarily force you to liquidate it.  When I asked about my Roth IRA, they said I just wouldn't be able to make purchases (in other words, it would be withdrawal only).  This could change, though, and there have been situations where people got letters from US brokerages giving them X number of days to relocate their account or have it liquidated.  Thus, I was interested in finding Canada-friendly brokerages.

As far as understanding the tax implications of rolling it over to an RRSP, I strongly recommend having a good crossborder tax person.  Feel free to PM me if you're looking for a recommendation.  I'm still doing my own financial planning, but I do have a tax person and that has been very helpful.  He generally doesn't recommend rolling things over from an IRA / 401K / 403b to an RRSP because you typically lose some capital due to the early withdrawal penalty.  Per him, it's usually more advantageous to just keep it as an IRA / 401K / 403b.  YMMV.

TFSAs are generally not recommended for US investors because they aren't recognized by the US and require more work from a tax perspective.  At the same time, he said once I have significant room (e.g. 20-30K) they may be worth it.  Because it isn't recognized as a retirement account by the US, you would need to be mindful of PFICs here (unlike a RRSP).

And it's easy to stay invested in Vanguard.  For my taxable account (at Questrade) it's in USDs and I just kept the same US ETFs.  You don't want to invest in the Canada-domiciled equivalents outside of an RSP, though, as that would trigger PFIC filings.  And if you leave your IRA / 401k with a Canada-friendly US broker, you can keep the same Vanguard ETFs.  Oh, and if you have your holdings at Vanguard in mutual funds, you can just journal them over to ETFs before you move them (it just takes a phone call).

I have a website where I documented my experience in trying to figure this stuff out (see link in signature) so feel free to check that out.  It's complicated, but it isn't too bad.

One more important thing -- if you have a Roth IRA, be sure to file an election form for it with the CRA with your first year's tax return.  That way, it will be recognized (and tax free) in Canada as well.