Blog post

The Question

Hi Phil,

My name is David and I found your website through the Americans in Canada Facebook group. My wife Sarah and I are both 58, currently living in Scottsdale, and we’re seriously planning to move to Vancouver next year to be closer to our grandkids. Sarah’s sister has been in North Van for about 15 years now and keeps telling us what a great lifestyle it is.

I spent most of my career in pharmaceutical sales and did well — I have about $1.2M in a traditional IRA at Schwab, plus another $180K in an old 401(k) from a company I left years ago. Sarah has about $300K in her own IRA. We also have a taxable brokerage with roughly $800K in it. Our house here in Scottsdale is worth about $950K and we plan to sell before we go.

I keep hearing people in the Facebook group say I should convert my IRA to a Roth before I become a Canadian resident. My accountant here in Arizona — good guy, been using him for 20 years — doesn’t really know much about Canadian tax and sort of shrugged when I asked. He suggested I talk to someone who specializes in this.

Is a Roth conversion before the move actually worth the upfront tax hit? I’m worried about writing a $300K check to the IRS in one year just to avoid some theoretical future Canadian tax. And should I be converting Sarah’s IRA too, or just mine? What am I looking at in terms of timing — do I need to get this done a full year before the move, or can I do it right before we cross the border?

Sorry for the long email — just trying to get my arms around this.

Thanks for any guidance,
David

Phil’s Answer

Hi David,

Great question, and your instinct is right — this is one of the most important things to get sorted before you become a Canadian tax resident.

Generally speaking, converting your traditional IRA to a Roth before you establish Canadian residency is one of the biggest planning opportunities we see. Here’s why: once you’re a Canadian resident, any conversion triggers tax in both countries — you’ll pay US tax on the conversion amount, and Canada will generally want their share too, since they treat it as income.

If you do the conversion while you’re still only a US tax resident, you’ll pay the US tax (roughly 24-32% on $1.2M depending on how you spread it out), but Canada isn’t in the picture yet. Once the money is in the Roth and you move to Canada, future growth and withdrawals are generally tax-free in both countries under the treaty — that’s a huge long-term win.

The timing piece is important. You don’t have to convert it all in one year — and frankly, you probably shouldn’t. A lot of our clients will do partial conversions over 2-3 years before the move to manage the tax brackets. The key is getting it done before you’re a Canadian resident for tax purposes. And yes, you should absolutely look at converting Sarah’s IRA too — the same logic applies.

That old 401(k) should be rolled into a traditional IRA first (tax-free rollover), then you can include it in the conversion strategy.

One thing to flag — your Arizona accountant is probably great for domestic returns, but cross-border planning is a whole different animal. You’ll want someone who understands both the 1040 side and the T1 side, especially when it comes to the treaty election under Article XVIII.

Hope that helps — happy to walk you through the numbers on a call if you’d like.

Regards,
Phil Hogan, CPA, CA
phil@beaconhillwm.ca

Related Articles

• Can I Keep My US Brokerage Account After Moving to Canada?
• Should I Convert My IRA to a Roth Before Moving to Canada?

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