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The hidden risks of moving mutual funds across borders
Mutual funds are built to function within the regulatory framework of their country of origin—which is perfectly fine until your country of residence changes. Once that happens, those same mutual funds can quickly turn into financial liabilities.
When you update your account address to reflect your new country, many financial institutions and online brokers will freeze the account or restrict it to “sell only” transactions. That means no rebalancing, no professional management and no ability to adjust to evolving market conditions.
In a worst-case scenario, the institution may require you to transfer the account to a financial institution in your new country within 30, 60 or 90 days—or it may liquidate the holdings immediately and send you a cheque. This can create major issues if it triggers the realization of previously unrealized capital gains, leading to an unexpected—and often significant—tax bill.
Here’s a breakdown of how mutual funds are treated depending on the type of account where they’re held, especially as you move across borders.
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RRSPs and mutual funds
If you move from Canada to another country, your RRSP stays in Canada. This means the mutual funds inside the RRSP can remain as well. However, if you try to purchase new mutual funds within your RRSP while having a U.S. address on file with the financial institution where the account is held, you’ll likely be restricted or denied from doing so due to regulatory limitations tied to your non-Canadian residency.
TFSAs and cross-border issues
Moving to the U.S. with a TFSA is an entirely different issue. U.S. citizens should generally avoid holding TFSAs, as the Canada–U.S. tax treaty does not recognize them for U.S. tax purposes. In short: while the TFSA can technically remain in Canada, the tax reporting and compliance burden in the U.S. often outweighs the benefits.
Non-registered accounts and mutual funds
Non-registered (taxable) accounts present the biggest challenge. These accounts typically cannot stay with you when you change countries of residence, for a variety of reasons: tax reporting, rebalancing restrictions and residency-based limitations. For example, as a Canadian resident, I can’t open or maintain a U.S.-based non-registered brokerage account. Likewise, if you move to the U.S., your Canadian non-registered account (and the mutual funds inside it) may need to be restructured, as mutual funds are country-specific investment vehicles.
The same rules apply in reverse: U.S. retirement accounts like the IRA and 401(k) stay in the U.S., but U.S. non-registered (taxable) accounts typically need to be closed or adjusted if you’re no longer a resident.