Moving to Canada and I have questions – 401(k), IRA, investment accounts, currency conversion and house sale?

Question

Hi Chris

I hope this email finds you well. My name is XXXXX, and I am reaching out to you today because I am in need of your expertise. I am in the process of planning my move from the United States to Canada and I would like to discuss the best ways to handle my financial assets and retirement plans during this transition. I found your information online and was glad to see you’re in Victoria. I’ve been doing some research online, but I’m finding all of this very confusing and really need help navigating these issues.

I have a 401(k), IRA, Roth IRA, and a company pension plan (not yet receiving any payments), and I am planning to do some consulting work for a few years before I retire in Canada. I also have a regular investment account in the US still and I might receive an inheritance in the future. As you can imagine, I am quite concerned about how these assets will be affected by the move and I would appreciate your help in planning and ensuring a smooth transition.

I’m also interested in hearing about how I can convert USD to CAD in the most efficient manner possible. I will be selling my house this year and will be converting a fair amount of US dollars to buy a house in Canada when we arrive.

Regarding my non-registered investment account, do you think it would be a good idea to transfer it to Canada? And, I've been considering a Roth IRA conversion (I saw you advised this in a previous article), would this be a wise move given my situation?

If you are available, I would love to schedule a call or meeting to discuss my situation further and learn more about your services and how you can help me. I would also appreciate any information you could provide me with on the tax implications of my move and any other considerations I should keep in mind.

Thank you for your time and I look forward to hearing from you soon.

Best regards,

XXXXXX

Answer

Hi XXXXX

Thanks for reaching out. Yes, we should definitely schedule a cross-border investment consultation but I can give you some general ideas on what we can help with respect to the move. In fact, I made this move myself many years ago.

First, we’ll want to ensure we do a lot of the investment planning well before you become a Canadian tax resident. Once you’ve established your Canadian residency date many of the planning opportunities will cease to exist.

Some items we’ll want to review:

• Depending on your level of income in the year you move to Canada it may be beneficial to convert some of your traditional IRA to a Roth IRA. If your US tax rate is relatively low we should be able to save quite a bit of future Canadian tax on the conversion. You’ll have to ensure you file appropriate treaty elections with CRA with respect to any Roth IRAs you hold after you move to Canada.
• If the plan allows we may want to roll the 401(k) into the IRA to ensure efficiencies in managing the portfolio as a whole.
• The regular non-registered investment accounts will be some of the most important to tackle given the complex reporting requirements for Canadian tax purposes. In order to avoid significant T1135 reporting these accounts, should be moved into Canadian accounts before you enter Canada. Also, all the investments in the account will be “revalued” for Canadian purposes to ensure you are not taxed on any appreciation on the investments before you moved. This is accomplished by “bumping” your adjusted cost basis (ACB) to fair market value “FMV” at the date of entry. We can discuss more on this on our call.
• We can also review tax and investment consequences of any future inheritances, especially if they involve US trusts.
• The same revaluation will occur with the US house and as long as it’s sold shortly after you move you should be able to keep any principal residence exemption intact that is currently available.
• Yes, converting large sums of USD to CAD can be quite inefficient if you’re not getting a good rate. Most of the large banks in Canada offer terrible spreads on currency conversion. We’re able to offer clients very attractive conversion rates close to spot. Once again, we can discuss details on our call.

I hope the information above has been useful and I look forward to chatting with you soon. You can book your cross-border financial consultation here.

Regards

Chris