Moving to Canada with ROTH IRA, IRA and US investments at Vanguard

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Question

Hi Phil,

Thank you for all the great youtube videos on tax as they have been quite useful in our research.

As I stated on my message, we are both open to setting up an appointment & paying you for your time & expertise, as we know how critically important it is to get the right Cross-Border financial advice BEFORE moving to Canada – after speaking with other accountants, we feel that we need an expert & qualified 2nd opinion on what you feel & recommend is the best cross-border financial strategy for our particular situation.

My husband, XXXXX, was in previous contact with you, with regards to your initially referring him to your colleague.

I will try to keep this as short as possible, as I know how busy you are with existing clients.

Here is our current financial & personal information:

My husband & I are both 72. My husband’s name is XXXXXXX, & my name is XXXXXXX.

I will be turning 72 in November & John will turn 72 in XXXXXX 2022.

We both have dual Canadian & US citizenship – I was born & raised in Victoria & met XXXXX when I was 35 when we were both attending XXXX. XXXX’s parents were both Canadian citizens (both were born in Vancouver) but XXXX was born & raised in the US. XXX moved to Vancouver to live with his dad when he was 18, after his parents divorced. We moved from Canada to the US in September 1992 for both personal & work reasons, when we were both 35. We have only one child, our son Fred, who is 35 & was born in the US; he will likely remain living & working in the US for the foreseeable future. Sean is unmarried & has no children. (Fred is applying for his proof of Canadian citizenship, to have the option of moving & living in Canada @ some future pt). We have lived & worked continuously in the US since September 1986 &  have never moved back to Canada for the past 35+ years.

For multiple reasons, we want to leave the US & live permanently in Victoria, once XXX retires either @ the end of this year, or the next, when we’re both 73. After retirement, at age 73, our approximate combined US income (not including our US investment income) will be $103K yearly, before taxes. About 91% of our total anticipated retirement income will be from our combined US Social Security & my retiree Bank pension; the remaining 9% will be from our combined Canadian CPP & OAS pension income at age 73.

We were planning on selling our home moving to Canada, & using the $ proceeds from our US home sale, along with withdrawing a portion of our combined traditional & roth retirement IRA funds, to ideally pay for & buy a home in Victoria (paying cash, no mortgage), during the escrow period of our pending US home sale. Our current budget includes paying a maximum of $1.5 MM Canadian to buy a Victoria residence. It’s almost impossible to know how much we can sell our home for when the time comes due to market volatility – online realtors have given us a price quote as high as $850K US for our Tacoma home, based on recently sold comparable values, but selling prices here will likely come down by the time we’re ready to sell in the next 12 to 24 months. Either way, we’ll need to tap into our IRA’s to make up the difference needed to pay all cash for a Victoria residence, vs getting a mortgage from a Canadian bank.

Our current combined Traditional & Roth IRA balances are approximately $1.6 MM US – they are down about 13% due to current market volatility. Right now, we have with Vanguard & Fidelity about $525K in total Roth IRA’s & the remaining 1.1MM in Traditional IRA proceeds. I’m planning on instructing Vanguard to add to our existing Roth holdings, by converting about $150- $200K of our Traditional IRA funds into Roth Conversions for both 2022 & 2023 tax years.

We normally keep a running balance of about $3500 – $5000 from XXXX’s bi-weekly salary & my retiree bank pension in our main US banking account to pay ongoing expenses. His current yearly salary is $112K, & my annual bank pension is $22K US – I am already retired & do unpaid volunteer work.

We have no other savings or extra money for us to draw from, other than the IRA investments I’ve mentioned above.

We anticipate having to pay an additional approximate $200K in future expenses BEFORE moving to Canada: international moving expenses; paying off our existing 2nd mortgage; realtor fees for US home sale; WA State home sale closing costs, & other smaller related costs.

Believe me, we would LOVE to just place everything we have with given your recommendation & their expertise & experience with Cross-Border finances, & most importantly, having peace-of-mind on knowing that all our cross-border financial needs are being expertly handled.

Phil, I apologize for writing so much, but I wanted to include enough basic personal & financial information for you to better understand our particular financial cross-border challenges.

Will wait to hear back from you – Thank you in advance for all  your help!

Sincerely,

Answer

Thanks for the email. I won’t be back in the office until early September, however I can outline some general thoughts for you below.

If you need to setup a consult later I can send out the link.

  • In most cases I would not advise to move money out of your IRA or ROTH to fund a house purchase, but if getting a mortgage is not an option perhaps you don’t have a choice. I just hate the idea of paying a higher rate of tax on IRA distributions that could be spread out over a number of years.
  • The ROTH conversion does make sense before you move to Canada. Just make sure to file your ROTH election in the year you move to Canada to ensure it’s tax-free for both Canadian and US purposes going forward.
  • I do understand your concerns below on the cost, however for Canadian purposes 1% management is a very reasonable fee given their cross-border tax and financial planning knowledge. Both of which Vanguard doesn’t have.

Let me know if you would like to setup a cross-border investment consult when I return.

Cheers

Phil

 

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