What to Do With Your U.S. Accounts Before You Move to Canada

Do Not Automatically Move Your 401(k)

If you have a 401(k), 403(b), 457(b), or other employer retirement plan, there is no rule that says it needs to follow you to Canada.

Your existing plan may have low fees, good investment options, creditor protection, or withdrawal provisions that you could lose by moving the money elsewhere. There can also be Canadian and U.S. tax considerations depending on the type and structure of the plan.

A rollover may ultimately make sense, but the decision should be based on the features of your particular plan and your longer-term retirement and estate strategies rather than simply on the fact that you are moving.

Review Your Roth IRA Before You Move

A Roth IRA deserves special attention because decisions made before and after becoming a Canadian resident can have very different consequences.

A Roth IRA can generally receive favourable treatment in Canada under the Canada-U.S. tax treaty if certain conditions are met. A Canadian resident with a Roth IRA should generally consider whether a treaty election is appropriate to preserve favourable Canadian tax treatment.

What happens after you arrive is particularly important. A contribution made after becoming a Canadian resident can cause income accruing after that contribution to lose treaty protection. The portion of the Roth IRA that existed before the contribution may continue to receive favourable treatment if the appropriate election was made.

Roth conversions also require care. Converting a traditional IRA to a Roth IRA before becoming a Canadian resident may be worth considering in some circumstances, especially if you can do so at a relatively low tax rate and expect to pay a higher Canadian tax rate in the future. A conversion after becoming resident in Canada can be treated as a Canadian contribution and change the account's Canadian tax treatment.

That does not mean everyone moving to Canada should do a Roth conversion. The U.S. tax cost, your expected future tax rates, and the timing of Canadian residency all matter. If a Roth conversion may be appropriate, it is generally easier to evaluate before Canadian residency begins.

Do Not Forget 529 Plans

If you have saved for a child's education using a U.S. 529 plan, have it reviewed before moving as well.

A 529 plan receives favourable tax treatment in the United States, but its Canadian treatment requires separate analysis. The answer can depend on the legal structure of the plan, the investments held, contributions, and withdrawals.

Before making changes to a 529 plan, understand how Canada will treat the account after you become a resident.

Check Whether Your U.S. Financial Institution Will Keep You

Moving to Canada does not necessarily mean you have to close your U.S. bank and brokerage accounts. But whether you can keep them depends on the financial institution.

Some U.S. firms will continue servicing clients who move to Canada. Others may restrict trading, limit the investments you can purchase, or require an account to be transferred or closed. Keeping a U.S. address is not the solution either.

Check with your financial institutions long before you move to find out their policies for Canadian residents. If an account needs to be transferred, it is better to know while you still have time to consider your alternatives.

Record the Value of Your Investments When You Become a Canadian Resident

Moving to Canada can also create different cost bases for the same investment.

When Canadian tax residency begins, Canada generally deems capital properties to be acquired at their fair market value at that time. For U.S. federal tax purposes, moving to Canada generally does not provide the same reset in cost basis. The result is that the same property can have one cost basis for Canadian tax purposes and another for U.S. tax purposes. You may need to track both until you eventually dispose of it.

Keep reliable records showing the fair market value of your investments and other relevant capital property when you become a Canadian resident. Reconstructing those values years later is considerably more difficult.

Consider Your State Tax Ties

Leaving the United States does not necessarily end your relationship with your former state for tax purposes.

State residency and domicile rules vary. Depending on the state, factors such as your home, driver's licence, voter registration, financial accounts, and other ties may be relevant.

If you are moving from a state with an income tax, get advice about what is required to establish that you have actually left for state tax purposes. The Canada-U.S. tax treaty does not necessarily resolve state residency issues.

Review Your Estate Documents

Your tax returns and investment accounts are not the only things that need attention when you move across the border.

Wills, powers of attorney, beneficiary designations, and your broader estate plan should be reviewed to make sure they still accomplish what you intended once you become a Canadian resident.

This is particularly important if you have significant assets, own property in both countries, or have family members with different citizenship or residency. Cross-border estate planning can involve both Canadian tax on death and U.S. income tax and estate tax considerations.

Planning Before the Move Gives You More Options

Timing matters when moving from the U.S. to Canada.

You do not necessarily need to close U.S. accounts, move retirement savings, convert a Roth IRA, or restructure your investments. But you should understand the Canadian and U.S. tax implications before Canadian residency begins.

Once you have moved, some planning opportunities disappear and others become more complicated. If you have significant investments, retirement accounts, real estate or business interests, cross-border planning before the move may be worthwhile.

The objective is not to change everything. It is to avoid preventable mistakes and missed opportunities.