If you’re planning to move the US to Canada and are looking for some personal finance tips, you’re in the right place. Part 1 of this series covers some of the differences between the US and Canada in terms of things like taxation, investing, banking and estate planning. Here in Part 2, we have a financial checklist of key items to consider before you move. And later, in Part 3, we’ll go over some actions you may want to take after moving.

As discussed previously, engaging with experts in crossborder tax, financial and estate planning is absolutely a good idea. My intention here is to give you the information you need to DIY as much as your comfortable with, and to understand the issues and ask the right questions when and where you engage a professional. And if you have any questions or suggestions for additional topics, please feel free to post them in the comments.

Also, as with Part 1, my primary intended audience are people with US tax reporting requirements (i.e. US citizens or Green Card holders) who have moved to Canada. At the same time, much of this may be relevant for other people moving to Canada as well.

Let’s dig in to our financial checklist of actions to consider before moving from the US to Canada.

Investing

Consider a Roth Rollover

If you’re planning to stay in Canada indefinitely, you may want to roll over traditional retirement accounts into a Roth IRA.  The rationale is that your future taxes (in Canada) would be higher than your current taxes in (the US).  This is particularly true if you’re coming from a state in the US with no state income tax. The specific math will vary based on income and residency, but ideally you’d spread these rollovers over a period of years to minimize the tax hit.

And I say this elsewhere but it’s very important: once you’ve moved to Canada, be sure 1) not to contribute to your Roth IRA and 2) to file an election with the CRA.

Find a Canada-friendly US brokerage

Talk to the companies that hold your investments and ask if you’ll be able to continue to hold those investments and trade in those accounts once you are a Canadian resident.  Many US brokerages will allow you to keep retirement accounts, but few will allow you to keep taxable accounts.  If you can’t find anyone to hold your taxable account, don’t worry – you can transfer it (keeping the same US holdings) to a Canadian brokerage after you move.  Just don’t change the address on your US account ahead of time or it might get locked.

It’s a good idea to sort this out ahead of your move because even some of the more Canada-friendly US brokerages will only let you open a new account while you are still a US resident. Here is a longer piece I wrote on finding a US brokerage that will continue working with you after you move to Canada.

Consider shifting a 529 to a Relative or Friend

529 plans¹a US tax-advantaged education savings plan are not tax-sheltered in Canada.  They are viewed by the CRA as taxable brokerage accounts.  There is also the possibility that they could be deemed a resident trust and thus require Canadian trust filings. Thus, before you move, you may want to consider transferring ownership of a 529 to a trusted friend or relative to allow it to continue to grow tax-sheltered.

Consider what to do with Retirement Accounts (IRA, 401b, 403b, 457b)

The good news is that Canada generally respects the tax-deferred nature of these US plans under the Canada-US tax treaty.  Thus, as long as you’re at a Canada-friendly US brokerage, you can leave them where they are.  Alternatively, you could roll them into an IRA, which could have some advantages (e.g. more investment options, lower fees).  At the same time, note that rolling these into an IRA could also mean losing some benefits.  For example, 457bs don’t have an age restriction on penalty-free withdrawals.  Also, withdrawals from 401bs, 403bs, and 457bs are eligible for income splitting in Canada, while withdrawals from IRAs are not.

It is also possible to bring a US IRA into a Canadian RRSP. This has a lot of nuance, though, and is not something to be done without full understanding and, likely, professional advice. I’ll write more on the pros and cons of that later, but in brief it is possible to get double-taxed on such a transfer if you aren’t careful. And when getting professional advice on this topic, it is worth considering the incentives of the person giving you advice. If they get paid based on the amount of money they manage for you, they may be more likely to suggest solutions that consolidate money under them.

And with the Roth version of these accounts, you almost certainly will want to leave them in the US. Again, the key to getting your Roth recognized as tax-free in Canada is to 1) not make contributions from Canada and 2) to file an election with the CRA. Unlike a traditional IRA, there is no mechanism for rolling a Roth IRA into a TFSA (its closest Canadian equivalent).

Taxation

Consider Selling Real Estate

If you own US real estate, you may want to sell it before establishing Canadian residency to avoid Canadian capital gains tax on future appreciation.  For Canadian tax purposes, due to the “deemed acquisition” we discussed in Part 1, you’ll establish a new cost basis for the property at its fair market value on the day you become a Canadian tax resident. This means that Canada will generally only tax the appreciation that occurs after this date.

Consider Collapsing Trusts or Corporations

The IRS and the CRA view structures like trusts and corporations differently, so strategies commonly used in the US can cause headaches (and tax issues) in Canada.  If you have a corporation (e.g. an LLC) or a trust (e.g. as part of an estate plan), it is definitely worth talking to an expert and considering collapsing them before you move.  It is often more complicated and costly to unwind these after moving.

Banking

Set Up a Canadian Bank Account

The Big 5 Banks (RBC, TD, Scotiabank, BMO, CIBC) typically have a “newcomers” package to help you get started, some of which you can open even before you have a Canadian mailing address.  If you want to buy a house right away, it’s even possible to get approved for a mortgage at one of the Big 5 Banks using US credit, before you have a Canadian address.

As mentioned in Part 1, though, once you’re settled, I encourage you to check out some of the alternative providers (e.g. EQ Bank and Wealthsimple) as they typically have better rates and lower fees.

Exchange Currency Wisely

And while the Big 5 Banks are useful for many things as a newcomer, exchanging currency isn’t one of them.  If you’re moving money, use an alternative service (like Wise) to get a better rate and save on fees.  You can use Wise to transfer money directly from your US bank (in USD) to your Canadian bank (in CAD) in a matter of days, for less than what a bank would charge you.

Another way to spend your preferred currency is to use a no foreign transaction fee US credit card. To be very clear, I am not suggesting cash advances, which are a terrible way to exchange money. Using a no foreign transaction fee US credit card for purchases in Canada, however, can be an effective way to spend USD, essentially exchanging currency transaction by transaction.

Before committing to a particular card, it’s worth making a couple of small purchases to check the rate you’re getting, but in my experience many US credit card providers offer a good exchange rate. This is a pretty frictionless way to spend USD in Canada.

And, of course, you should only do this if you’re able to pay your credit card balance off in full each month.

Insurance

Get Private Health Insurance (depending on the Province)

Some provinces have a waiting period (e.g. 3 months) before new residents are eligible for their health insurance. If you’re moving to a province with a waiting period, you should sign up for temporary private health insurance to bridge the gap during the interim.

Depending on the particulars of your situation (e.g. expensive prescriptions), it may also be worth having extended health benefits. In my experience, though, these are typically only worth it if you’re able to get them through a job or other group plan.

Review US Insurance Policies (beyond Health)

If you’re continuing to carry US life, disability or long-term care insurance, confirm that these will remain valid after you move and would pay out if you were a Canadian resident. You may be better off cancelling these policies and replacing them with a Canadian equivalent.

At the same time, as you consider Canadian insurance policies, be sure that you understand their tax implications. Some varieties of Canadian life insurance (e.g. those with an investment or cash value component) do not meet the US definition of life insurance. Thus, from the US perspective, they might be taxable and could even be considered a PFIC or a foreign trust. For this reason, even in Canada, a US person might find a US-based life insurance policy to be a better fit. Again, this is an area where expert advice could be helpful.

Get your Driving History

The process varies by state, so contact your local DMV to find out how to get your official driver’s history. In some states, you can only do this in person. You’ll need a history of 2 years (plus a valid US license) to get a Canadian license, and 10 years of history will help you get reduced insurance rates.

And you should definitely do the math on whether or not it’s worth it, but if you’re looking to import a car when you move to Canada, here’s a good guide.

In Conclusion

These are a bunch of things you’ll definitely want to consider before moving from the US to Canada. This is certainly not a comprehensive list, though, and it can be helpful to talk to an expert beforehand, particularly in terms of taxation or financial planning. In Part 3, we’ll talk about key things to bear in mind after moving.

Next up: Part 3 – What should you do (and not do) after moving from the US to Canada?

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  a US tax-advantaged education savings plan