Moving from Canada to the United States with Canadian Investment Accounts

Written by Carson Hamill CIM®, CRPC®, Associate Portfolio Manager and Assistant Branch Manager & Dean Moro BComm, CIM®, Associate Portfolio Manager

Moving from Canada to the United States introduces complexities to the management of your investment portfolio, particularly if your financial advisor can no longer manage your accounts. Here is a comprehensive guide to help you navigate this transition.

• Can You Keep Your RRSP With Canadian brokerage?
• U.S. Resident With Canadian Investment Accounts – Top Issues To Consider
• Moving to the U.S. With a Canadian Retirement Income Fund (RIF)
• What About Your Other Accounts?
• Additional Factors To Consider
• Summary

Can You Keep Your RRSP With a Canadian brokerage?

Explore the option of keeping your Registered Retirement Savings Plan (RRSP) with your existing Canadian brokerage. Be prepared for possible account freezing and/or restrictions, or the possibility that your RRSP will transition to a self-directed account. With a self-directed RRSP, you will be responsible for all investment decisions without the assistance of a financial advisor.

For support and assistance managing your RRSP, and to handle the complexities of relocating to the United States, consider working with a dual licensed cross border financial advisor. They can manage retirement accounts for U.S. residents and provide ongoing investment guidance and support throughout your financial transition.

U.S. Resident With Canadian Investment Accounts – Top Issues To Consider

Canadian retirement accounts and TFSAs can create complicated tax situations for U.S. resident taxpayers. A cross-border financial advisors, licensed in both Canada and the U.S., will be equipped to offer guidance to effectively manage these complexities.

Taxable non-registered investment accounts cannot be maintained in Canada due to regulatory compliance. Canadian taxable investment accounts must be shifted to a U.S. licensed brokerage firm like Raymond James (USA) Ltd. Certain securities, including Canadian mutual funds, will need to be sold to ensure a smooth transition. An experienced cross-border financial advisor can help you navigate this process.

Avoid using a family member's address to feign continued presence in Canada as it can result in regulatory complications. Canada is increasingly collaborating with the U.S. IRS and other authorities to monitor financial assets and individuals' movements across borders, emphasizing the need to follow correct procedures. Seeking guidance from a cross-border financial professional licensed in both countries is highly recommended to navigate these complexities.

Moving to the U.S. With a Canadian Retirement Income Fund (RIF)

If a Canadian Registered Retirement Income Fund (RRIF) holder is considering moving to the United States, there are several financial and tax considerations to keep in mind. The U.S. taxes its residents on worldwide income. Once you become a U.S. tax resident, you'll need to report your Canadian income, including RRIF withdrawals, to the IRS.

It's important to understand the tax implications of RRIF withdrawals in both countries. The U.S. and Canada have a tax treaty that may provide some relief from double taxation, but it's crucial to understand the specifics.

As always, we advise working with an experienced cross border tax professional when you have to report Canadian income on your U.S. tax return.

What About Your Other Accounts?

Consider the impact of your move on other types of accounts as well, including:

1. Locked-in Retirement Account (LIRA)
2. Registered Education Savings Plan (RESP)
3. Life Insurance

1. Locked-in Retirement Account (LIRA)

If you have a Locked-in Retirement Account (LIRA), you may be able to convert it to a regular RRSP some time after you become a non-resident. The rules surrounding the conversion of a Locked-in Retirement Account (LIRA) to a Registered Retirement Savings Plan (RRSP) can vary, depending on the specific regulations in the provinces or territories in Canada. Additionally, the tax implications of such a conversion can be complex.

Given the complexity of these matters and potential changes in regulations, it is strongly recommended that you consult with a financial advisor who is knowledgeable about both Canadian and U.S. tax laws.

2. Registered Education Savings Plan (RESP)

Your green card status has an impact on your RESP. According to Canadian tax rules, you typically don't need to close the RESP account when the beneficiary becomes a non-resident. Nevertheless, you won't be able to make further contributions while the beneficiary resides in the United States.

The income within the RESP remains tax-deferred for Canadian tax purposes until withdrawals occur. For U.S. tax purposes, the RESP income is not tax-deferred. This means the U.S. tax implications are contingent on the residency of both the subscriber and the beneficiary. If the subscriber is a U.S. resident, the income and capital gains, will be reported to the IRS annually.

Solution: Consider the straightforward solution of transferring the RESP to a family member residing in Canada before your move to the U.S. This approach neatly sidesteps the potential issue of taxable income in the United States, providing a smooth and sensible resolution to the matter.

3. Life Insurance

Maintaining your existing life insurance policies when moving across the border can be a nuanced process. It's essential to carefully review your policy and contact the insurance provider directly for specific information regarding the implications when relocating to the United States. Premiums paid into a non-U.S. insurance policy may be subject to a quarterly excise tax.

Additional Factors To Consider

Here are some additional factors to be aware of when moving to the United States with investment accounts:

Tax Implications: Canadian Taxes: Before leaving Canada, it's important to settle any outstanding tax liabilities. Consult with a tax professional to ensure that you've fulfilled all your tax obligations in Canada.

Currency Exchange: When moving funds from Canada to the U.S., you'll likely need to convert Canadian dollars to U.S. dollars. Be aware of currency exchange rates and associated fees, as they can impact the overall value of your assets.

Cross-Border Financial Planning: Seek advice from financial professionals who understand both Canadian and U.S. tax laws. This may include consulting with tax advisors, financial planners, and legal experts who specialize in cross-border issues.

Estate Planning: Review your estate plan in light of your move. The U.S. has different estate tax rules than Canada. Consult with an estate planning professional to ensure that your plan is appropriate for your new circumstances.

Social Security and Other Benefits: If you're eligible for Canadian benefits, such as the Canada Pension Plan (CPP) or Old Age Security (OAS), understand how your move may affect these benefits. Additionally, if you're eligible for U.S. Social Security benefits, be aware of any impact your RRIF withdrawals may have on those benefits.

Reporting Requirements: Be aware of the reporting requirements for foreign financial accounts. In the U.S., you may need to report your Canadian RIF on forms such as the FBAR (Report of Foreign Bank and Financial Accounts) and FATCA (Foreign Account Tax Compliance Act) reporting.

It's crucial to work with professionals who are knowledgeable about both Canadian and U.S. tax and financial regulations to ensure a smooth transition and compliance with all relevant laws. The information provided here is general in nature, and individual circumstances may vary, so personalized advice is recommended.

Summary

It’s important to understand the tax implications associated with each investment account type when moving to the United States. Some investment accounts may have tax treaty provisions, but state-specific taxation can also apply. To avoid regulatory and tax complications, it is best to speak with an experienced dual licensed financial advisor who can work closely with your cross-border tax professional. Seeking advice from experienced cross border professionals will ensure you are making well-informed decisions tailored to your specific financial situation.

Next Steps

If you’re planning on moving to Canada and need assistance with your investments, estate planning, and portfolio management, please call or email us at Snowbirds Wealth Management as we specialize in cross-border financial planning and wealth management. We work closely with experienced cross-border lawyers and accountants to ensure you have a team behind you.

About Snowbirds Wealth Management

Gerry Scott is a portfolio manager and founder of Snowbirds Wealth Management, an advisory firm focussed on the cross-border market. Together with Dean Moro and Carson Hamill, associate portfolio managers with Snowbirds Wealth Management, they provide investment solutions for Americans living in Canada, and Canadians residing in the United States. Licensed in both Canada and the U.S., they provide tailored investment solutions to minimize the tax burden when moving assets across borders.

To schedule an introductory call, please click here.

Statistics and factual data and other information are from sources RJLU believes to be reliable but their accuracy cannot be guaranteed. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities nor is it meant to replace legal, accounting, taxation or other professional advice. We are not tax advisors and we recommend that clients seek independent advice from a professional advisor on tax-related matters. The information is furnished on the basis and understanding that RJLU is to be under no liability whatsoever in respect thereof. RJLU does not offer any insurance products as we are not licensed to do so.