Author Topic: HSA and 529 Treatment in Canada (US Citizen Moving to Canada)  (Read 1492 times)

kenmoremmm

  • Pencil Stache
  • ****
  • Posts: 682
HSA and 529 Treatment in Canada (US Citizen Moving to Canada)
« on: January 26, 2021, 05:45:44 PM »
i have an HSA through work. if i move to canada for residency, eventual citizenship, and possible eventual expatriation (renouncing US citizenship), how is an HSA treated?

same question applies to a 529 plan. additionally, i would assume my kids would attend a canadian university.

thanks

Goldielocks

  • Walrus Stache
  • *******
  • Posts: 6992
  • Location: BC
Re: HSA and 529 Treatment in Canada (US Citizen Moving to Canada)
« Reply #1 on: February 02, 2021, 02:54:18 PM »
I think the best response is to divest the HSA and 529, especially if you don't intend to return to the USA within a very short few years, or have a US employer paying you while in Canada and therefore you have some more loopholes available to you.

In the other direction, the USA treats RESP and health accounts as "trusts" and subject to tax as they earn income each year, and require you to file full "trust tax paperwork" on them each year. ($$ to prepare)  Usually this is reciprocal across the border.  Also, HSA rules are fairly new, and the CAN / US tax treaty doesn't get updated that often.

kenmoremmm

  • Pencil Stache
  • ****
  • Posts: 682
Re: HSA and 529 Treatment in Canada (US Citizen Moving to Canada)
« Reply #2 on: February 02, 2021, 03:46:33 PM »
your input is appreciated. i'll have to look into what divesting an HSA involves (paying taxes and cashing out?)

likewise on the 529 plan. i assume there's a 10% penalty (or more) and i think there are some rules that if you don't use them, eventually you can just cash them out. it's been awhile since i looked. to complicate this, i'm not sure how it would work if renouncing US citizenship.

Goldielocks

  • Walrus Stache
  • *******
  • Posts: 6992
  • Location: BC
Re: HSA and 529 Treatment in Canada (US Citizen Moving to Canada)
« Reply #3 on: February 02, 2021, 04:20:37 PM »
your input is appreciated. i'll have to look into what divesting an HSA involves (paying taxes and cashing out?)

likewise on the 529 plan. i assume there's a 10% penalty (or more) and i think there are some rules that if you don't use them, eventually you can just cash them out. it's been awhile since i looked. to complicate this, i'm not sure how it would work if renouncing US citizenship.
It might be a good time to talk to a cross border tax accountant.

secondcor521

  • Magnum Stache
  • ******
  • Posts: 4496
  • Age: 53
  • Location: Boise, Idaho
  • Big cattle, no hat.
    • Age of Eon - Overwatch player videos
Re: HSA and 529 Treatment in Canada (US Citizen Moving to Canada)
« Reply #4 on: February 02, 2021, 04:51:00 PM »
I am not aware of any rule that requires liquidating either HSAs or 529s simply because the owner or beneficiary moves out of the US.  There may be rules requiring liquidation on loss of citizenship, but I'm not familiar with those rules if they exist.

It appears that 529 funds can be used at many Canadian universities.  See for example:

https://www.savingforcollege.com/questions-answers/article/529-rules-apply-to-many-foreign-schools

It's an old article but I think the information in it is still valid.

Goldielocks

  • Walrus Stache
  • *******
  • Posts: 6992
  • Location: BC
Re: HSA and 529 Treatment in Canada (US Citizen Moving to Canada)
« Reply #5 on: February 02, 2021, 05:12:24 PM »
I am not aware of any rule that requires liquidating either HSAs or 529s simply because the owner or beneficiary moves out of the US.  There may be rules requiring liquidation on loss of citizenship, but I'm not familiar with those rules if they exist.

It appears that 529 funds can be used at many Canadian universities.  See for example:

https://www.savingforcollege.com/questions-answers/article/529-rules-apply-to-many-foreign-schools

It's an old article but I think the information in it is still valid.
You are correct that you are not required to liquidate it...  Just that the tax filing burden and having to pay taxes on it negates the usefulness of keeping them unless it is for a very short time before returning to the USA.

secondcor521

  • Magnum Stache
  • ******
  • Posts: 4496
  • Age: 53
  • Location: Boise, Idaho
  • Big cattle, no hat.
    • Age of Eon - Overwatch player videos
Re: HSA and 529 Treatment in Canada (US Citizen Moving to Canada)
« Reply #6 on: February 02, 2021, 05:28:02 PM »
I am not aware of any rule that requires liquidating either HSAs or 529s simply because the owner or beneficiary moves out of the US.  There may be rules requiring liquidation on loss of citizenship, but I'm not familiar with those rules if they exist.

It appears that 529 funds can be used at many Canadian universities.  See for example:

https://www.savingforcollege.com/questions-answers/article/529-rules-apply-to-many-foreign-schools

It's an old article but I think the information in it is still valid.
You are correct that you are not required to liquidate it...  Just that the tax filing burden and having to pay taxes on it negates the usefulness of keeping them unless it is for a very short time before returning to the USA.

Ah.  Interesting.  A US citizen living in Canada thus pays taxes on an HSA or 529, then?  Must be a tax treaty thing I'm guessing.

Goldielocks

  • Walrus Stache
  • *******
  • Posts: 6992
  • Location: BC
Re: HSA and 529 Treatment in Canada (US Citizen Moving to Canada)
« Reply #7 on: February 02, 2021, 05:31:03 PM »
I am not aware of any rule that requires liquidating either HSAs or 529s simply because the owner or beneficiary moves out of the US.  There may be rules requiring liquidation on loss of citizenship, but I'm not familiar with those rules if they exist.

It appears that 529 funds can be used at many Canadian universities.  See for example:

https://www.savingforcollege.com/questions-answers/article/529-rules-apply-to-many-foreign-schools

It's an old article but I think the information in it is still valid.
You are correct that you are not required to liquidate it...  Just that the tax filing burden and having to pay taxes on it negates the usefulness of keeping them unless it is for a very short time before returning to the USA.

Ah.  Interesting.  A US citizen living in Canada thus pays taxes on an HSA or 529, then?  Must be a tax treaty thing I'm guessing.

Yes, or more accurately, that you pay taxes on all global income UNLESS there is a specific tax treaty that deals with it in a different way.

kenmoremmm

  • Pencil Stache
  • ****
  • Posts: 682
Re: HSA and 529 Treatment in Canada (US Citizen Moving to Canada)
« Reply #8 on: April 25, 2021, 03:20:12 AM »
I'm following up to my original 529 question.

I spoke with a cross-border tax guy last week and he suggested liquidating the 529 plan. I presented him with the idea of me transferring account ownership of the 529 to someone else (relative/friend/etc) that will still be living in the US. He said that even in this situation, Canada could still treat this as a resident trust, and thus I would still be responsible for paying taxes on gains within the account. His logic was that since it was clear that I was the original account holder and have contributed funds, once I become a Canadian tax resident, the ties are there and Canada will connect them.

The articles below seem to contradict this advice by stating that simply giving up account ownership should alleviate the problem.

https://cardinalpointwealth.com/2020/08/25/cross-border-implications-of-holding-a-529-plan/
https://mcacrossborder.com/us-citizens-529-plans-living-canada/

So, I'm not sure what to do. To me, my intuition says that it should be fine if I relinquish account ownership. It would be akin to selling something off while in the US (stocks, real estate, etc) prior to moving to Canada. On a related note, he said that there would be no issue with a 3rd party creating a new 529 plan in our kids names, with someone else as the account owner.

Any thoughts?

secondcor521

  • Magnum Stache
  • ******
  • Posts: 4496
  • Age: 53
  • Location: Boise, Idaho
  • Big cattle, no hat.
    • Age of Eon - Overwatch player videos
Re: HSA and 529 Treatment in Canada (US Citizen Moving to Canada)
« Reply #9 on: April 25, 2021, 11:16:45 AM »
Have a 3rd party create 529s for your kids then do a rollover from "your" 529 to "their" 529?