If you’re looking for crossborder implications for Canadian investment account types, please see this article.

There are a lot of opinions about how best to handle US investment accounts when moving to Canada. On one extreme, some people recommend shifting everything to Canada (e.g. rolling IRAs into RRSPs). On the other extreme, you’ll find folks who recommend keeping US accounts where they are and using the mailing address of a trusted friend or family member.

Generally speaking, my advice is to leave US accounts where they are where possible, but only with a Canada-friendly US brokerage. Personally, I would almost never recommend using a friend or family member’s address for an investment account, with the exception of someone who was travelling for a time and didn’t have a true permanent mailing address.

Below, I’ll get into the specific implications for common US account types.

Taxable Accounts

It is hard (but not impossible) to find a US brokerage that will let you hold a taxable (aka non-registered) account as a resident of Canada. Thus, for your non-registered account I generally recommend opening a US dollar account at a US-friendly Canadian brokerage and transferring your taxable holdings in kind (so it isn’t a taxable event).

I’ll also do a future post on the crossborder implications for investments held in a Canadian taxable account as a US citizen, but in brief you’ll be OK holding your US-domiciled ETFs or stocks there.

Traditional IRA, 401(k)s and 403(b)s

Traditional IRAs, 401(k)s and 403(b)s are all tax-deferred retirement accounts where you contribute pre-tax dollars and don’t pay taxes until withdrawal, when these withdrawals are treated as income. They also all require participants to reach age 59.5 in order to withdraw funds without penalties. So, for our purposes here, I’m lumping them all together.

Before moving, one consideration with these Traditional account types is whether or not it makes sense to convert them (if possible) to a Roth equivalent. This can be a great move, as taxes are typically lower in the US and Canada recognizes Roth IRAs as tax-free. Note that this conversion has to be done before you come a Canadian resident and will be taxable in the US. I’ll discuss the considerations for these conversions in a future post.

Assuming you’re keeping your Traditional IRA, 403(b) or 401(k) when moving to Canada, you have a few options of how you could handle them.

1. Leave them in the US, with a Canada-friendly US brokerage.. This generally what I’d recommend, and it’s a good idea to move these accounts to a Canada-friendly US brokerage before moving, if possible.
2. Transfer the U.S. plan to an RRSP. This is doable, but there are a number of conditions that must be met in order for it to make sense tax-wise. Specifically — you need to a) have enough additional cash to make up the taxes withheld by the US plan administrator in your RRSP contribution and b) owe enough in Canadian tax to offset the entire foreign tax credit generated by the roll-over. Again, this can be done but it usually isn’t worth it. For additional info on whether or not this might be useful in your particular situation, please see these links: Link 1, Link 2
3. Withdraw the money as a lump sum and invest it in a non-registered account in Canada. This is typically done as a last resort, due to the tax implications and potential penalties. If you’re of retirement age and the account is relatively small, though, it might make sense.

For most people, #1 is a good approach, but it’s worth considering the other options. And if you’d like a hand in making decisions like these, please don’t hesitate to contact me.

Roth IRA \ Roth 401(k) \ Roth 403(b)

Roth IRAs, 401(k)s, and 403(b)s are all tax-deferred retirement accounts where you contribute after-tax dollars and don’t pay any taxes on gains or dividends even upon withdrawal. Like their traditional counterparts, they also all require participants to reach age 59.5 in order to withdraw funds without penalties.

These Roth accounts are similar to TFSA accounts in Canada in some ways, but importantly they CANNOT be rolled over into TFSAs. Thus, with a Roth account, the best option is absolutely to keep it at a Canada-friendly US brokerage.

The great news is that the CRA recognizes US Roth accounts, so your withdrawals will be tax-free in both the US and Canada. However, there are a couple of things that you need to do in order to make this work. Note that most of the documentation on the CRA page has to do with Roth IRAs, so it may be easier if you roll Roth 401(k)s and / or Roth 403(b)s into an IRA before moving, if possible.

Some key Roth advice:

1. Do not contribute to your Roth account after you move to Canada. This will contaminate the account and render it no longer tax-free.
2. File an election on your Roth account to the CRA when you file your initial tax return.

If you do both of these things, you will be able to withdraw money from your Roth tax-free in Canada (after age 59.5), just as you would have in the US.

457(b)s

457(b)s are deferred compensation accounts. They are like traditional 403(b)s and 401(k)s in that they are employer-sponsored accounts to which you contribute pre-tax dollars. The growth isn’t taxed, and then withdrawals are ultimately taxed as income. The great advantage of 457(b)s for folks interested in early retirement is that there is no age requirement in order to make penalty-free withdrawals. In other words, as soon as you stop working for an employer, you can start withdrawing money (as income) regardless of your age.

Because 457(b)s are less common than 401(k) or 403(b)s, there isn’t much in the way of official documentation on them from the CRA. The crossborder tax accountant I work with has said that even though it’s a bit of a grey area, it is ultimately in Canada’s interest to recognize them. If they do, they’ll be able to tax the future withdrawal as income. On the other hand, if they didn’t recognize them as tax-deferred they would only be able to tax the increase from the date you become a Canadian resident.

So, similar to the Traditional IRA / 401(k) / 403(b), I would usually recommend leaving 457(b)s where they are. If you’re considering a move to Canada in the future, though, it could also be advantageous to drawdown your 457(b) before moving and invest those assets in a taxable account instead.

529s

529s are not recognized by the Canadian government, and they are effectively treated as taxable brokerage accounts for Canadian income tax purposes. If possible, the most commonly recommended course of action is to transfer ownership of them to someone you trust who lives in the US.

For More Info

That’s a quick summary of some of the crossborder implications of several common US investment account types. If you’d like to talk more about your specific situation, please reach out.