Moving to Canada, working a bit, then retiring

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Question

Hi Phil

I came across your website after watching some of your videos on moving to Canada with investments. Quite helpful videos considering how little information there is about our situation online.

Let me outline out situation and you can tell me if you can help with our move.

I’m a dual citizen and my wife is an American. I moved to the US 25 years ago and shortly thereafter met my current wife. Our plan is to get her permanent residence in Canada and move to Ottawa or Montreal in the next year or so. We currently live in California.

We’ll both be working for a few years when we get to Canada but after that will will likely retire and quit working.

I’m a tech consultant making around $300,000 and my wife is a programmer making around $150,000 (part-time).

Here are our list of assets:

  • Main house worth $900,000 that we will sell before moving. Hoping to buy a house in Canada shortly after moving up
  • We both have IRAs worth around $300,000 each and regular investment accounts worth around $500,000 each
  • We both have relatively small ROTH IRAs
  • My wife is expected to receive a fairly large inheritance in the next few years. Likely a mix of investments and US real estate.
  • I still have around $100,000 in RRSPs that I had before I left Canada 25 years ago. I also have quite a bit of RRSP room that I never used when I left
  • We won’t need any of our investments until well after retirement
    Other misc assets like cars, jewelry and art

Honestly, I don’t really know how to start. From watching your videos I’ve picked up on a few planning items, but I’m still quite lost. One of my friends that used to work for the IRS said I should pull money from my RRSP before I come back to Canada. He said that as long as I’m not in Canada when I pull it out it won’t be taxed in the US and the bank will only withhold 15% tax. Then I can contribute it back when I come to Canada and offset it against my income.

We expect to make around the same in Canada that we’re earning now and will likely work for 3 to 4 more years.

Anyways, is this something you can help with?

Sincerely

XXXXXX

Answer

Hi XXXXXX

Thanks for the kind words about the videos. I’m glad people have been enjoying them. They take some time to produce, but seem to be adding value to many.

You certainly have a fair amount going on below and we should really schedule a proper consult. But I should be able to give you some general thoughts on your situation from the detail you outlined below.

First, let me start with the “advice” from your IRS friend. I really never like to point out people’s errors, however the advice he gave you is terrible. If you did pull money from the RRSP it would first attract withholding taxes and would be taxable fully in the US (unless you have basis already which is unlikely). Also, the amount of withholding would be 25%, not 15% as he stated. He was right that you can contribute amounts into the RRSP to offset some of your income when you become a Canadian resident, however that would only be the case to the extent that you have RRSP contribution room. Which is seems like you do have.

Considering you’ll still be making relatively high income when you move to Canada taking advantage of the current RRSP contribution room would be advisable. You will however need to be careful not to drive down your Canadian tax rate so low that you end up paying US tax on Canadian source income. It’s not very clear from the email below if you’ll be earning income from employment or business. This will change my answer, but we can chat more about this on our call if needed.

Also, if you’re working through a corporation or LLC we’ll certainly want to plan before you enter as some of these structures do not work well cross border.

Selling the house before moving up can be quite efficient, especially if you can claim the full US principal residence exemption.

The investments will likely require the most planning. In short, the ROTH IRA and regular IRAs can be transferred up in kind to a Canadian advisor that can manage investments on both sides of the border (we have people we know who can help). The non-register investments will be a little trickier as they would require significant tax compliance forms if not transferred up to Canada in a timely manner. You may have watched the T1135 video I posted some time ago that explained why this is so important.

We’ll also need to file a special election for the ROTH IRA for the first tax year in Canada.

Reviewing your wife’s future inheritance is likely a smart move. Especially if the assets are currently in a trust or will be moved to a trust upon transfer. This can cause some serious issues if not properly planned for.

As mentioned above I would simply leave the RRSPs as is and continue to allow them to grow and defer from tax until such time that you need to withdraw the funds. Not only that, we’ll want to use up any current RRSP contribution room to try and shelter as much income from taxation before retirement. Not only will you be able to use your current RRSP contribution room you’ll continue to accumulate RRSP contribution room as you work. The current maximum RRSP room you can earn for 2021 is currently $27,830.

Once again, you have a lot going on here and reviewing everything with a proper tax consultation likely makes the most sense. The good news is that you haven’t yet moved to Canada and we can plan some of these items properly before you move. I speak to too many people that waited until they moved to Canada to reviewing planning. In many cases planning opportunities close up once you actually move.

I hope the information above helped and let me know if you want to setup a consultation.

Cheers

Phil

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