There are many possible options for Americans and Canadians looking for savings and investment accounts, and ideally, such an account will allow you to avoid tax on contributions, investment income, and distribution. For Americans living in the U.S., the Health Savings Account (HSA) best achieves these goals but only if distributions are used for eligible healthcare expenses. You must be enrolled in a qualified High Deductible Health Plan (HDHP). There are no income limits on HSA deductibility.
But for Americans living in Canada, none of these benefits apply. For them, contributions can no longer be made to an HSA, and income from it is taxable in Canada with complex reporting requirements. As well, moving from the U.S. may cause an HSA to be frozen by the provider. For Americans with existing HSAs, it is best to use it up for any healthcare expenses. For Canadians living in the U.S., similar issues arise regarding Tax-Free Savings Accounts (TFSAs) and Registered Education Savings Plans (RESPs). It is hoped that HSAs, TFSAs, etc. may be included in future Canada/U.S. tax treaty protocols.
If you have moved across the Canada/U.S. border, there is real benefit in the advice of a qualified cross-border specialist to optimize your finances and avoid the landmines that exist. Check out this e-book for more on this topic from Cardinal Point’s cross-border professionals, including direct comparison of the tax treatment of all the popular savings and investment accounts available in Canada and the U.S.