Best practices for saving and investing as a Canadian in the US?

January 17, 2016 2:39 PM

Finally paid off all my consumer debt and now saving 30% of my take home. Yay! I've been using YNAB and making my way through Frugalwoods, madFIentist, Mr. Money Mustache, JD Roth... for encouragement and best practices. The catch is that I'm a Canadian living in the US for work and I could be here for 2 years or 20 years+ and I think this complicates the savings matter considerably.

I'm wondering if you know about, or can point to me to someone writing about, how to save and invest when you're in a foreign country. Turning to you on the green for financial advice (or where to go for online financial advice) as I'm not willing to spend money on a potentially expensive cross-border advisor while trying to save!

For example, I want to leverage my employer's 401k matching program, but if I start putting money into this in the US and then move back to Canada eventually, I believe I can't roll that money into an RRSP without paying v. large penalties.

Should I forgo the 401k to transfer money to Canada with the dollar being low right now?

What other cross-border personal saving and investing opportunities or pitfalls do you know about that you can share?

posted by gillianr to Work & Money (4 answers total)

You don't have to move your 401k money into an RRSP - you would probably leave it in a 401k and access it the same way you would if you stayed in America. You should definitely not forgo matching in order to do currency speculation, if you are saving 30% of your income then don't you have other savings? You need to know the withdrawal rules in America for each kind of account you have (401k, IRA, ...) and also the tax status these withdrawals will have in Canada, and where you can put this money in Canada if you were to save it there. Then figure out whether the drawbacks of the American account sare worth the hassle of Canadians account.
posted by the agents of KAOS at 2:47 PM on January 17, 2016

I'm in a similar situation, except that I am reasonably certain I will be heading back to Canada in a few years. I feel your pain. I feel like this is the kind of situation where it may in fact be a good idea to pay someone for their advice. I don't think there are enough people with the exact same situation for the internet to be super useful. But! As a random person on the internet who may or may not know what they are talking about, I have some thoughts.

1) Even if you convert your US dollars to Canadian dollars, your ability to invest that money in the Canadian stock market as an American resident will be limited. So even if you assume that the CAD goes back up to par (pure speculation) the 30% you make now is the equivalent of less than 4 years of 7% growth.

2) Don't ever decline free money. My understanding (IANAAOATL (accountant or tax lawyer) and my situation is different) is that there isn't a penalty if you can use your unused RRSP contribution room for the employer matching portion. If you come back to Canada, you can continue to hold it in some vehicle in the US (I dunno if it can stay as a 401k or not) while you build up that contribution room by not contributing to your RRSP for a few years.
posted by quaking fajita at 4:33 PM on January 17, 2016

your ability to invest that money in the Canadian stock market as an American resident will be limited

Not that I endorse this for the OP (home bias!) but it's easy to get exposure to Canadian equities as an American resident.
posted by ripley_ at 4:45 PM on January 17, 2016

Best answer: So I've been living in the US for 8 years as a Canadian. I don't have all the answers but the first answer is pretty much right - you invest it like an American would and tax treaties let you take it out post-retirement if you're back in Canada.

The pre-tax 401K is your best bet. If you have more money and your employer makes it available you can add additional money to a post-tax 401k as well. Here's a good PDF describing how Canadians with US retirement saving can deal with things. It is possible if you return to Canada to transfer a 401k to a RRSP but it's not the best choice if you then return again to the US. You can have Roth accounts as well and I think the tax treaty recognizes that a Roth account is like a TFSA for tax purposes.

With the dollar so low it is an interesting time to buy CAD but it might go lower so there's no guarantee it's a great idea. You can get exposure to Canadian markets with ETFs as others note, and many companies trade both in the US and Canada. But again there's no reason to invest very differently from the average American person - buy low-cost mutual funds, have some amount of exposure to international markets, real estate, bonds, etc.

Read the PDF I linked to - it's pretty comprehensive.
posted by GuyZero at 5:09 PM on January 17, 2016 [3 favorites]