Blog post

Key Points

• The couple is preparing to move from California to Victoria, BC, with a focus on financial planning.
• They need guidance on converting a 401(k) to an IRA and potentially creating a ROTH IRA.
• Reviewing and simplifying investment accounts before moving is crucial to avoid tax complications.
• Dissolving a revocable trust and winding up an LLC are potentially necessary steps before becoming Canadian residents.
• The couple seeks advice on whether to purchase a new home with cash or take out a mortgage.

Question

Hi Phil,

You likely don’t remember me, but we spoke a few years ago when my wife and I started planning our eventual move to Victoria from California. During our call, you mentioned that getting help with our investment planning would be a wise move. I’ve realized that I don’t have the necessary skills and am not well-equipped to properly manage our finances as we transition to Canada.

I also want to mention that I’ve really been enjoying your YouTube videos. I look forward to each new one that is uploaded to the channel.

It’s been a long time, and some things have changed, so let me fill you in on our situation again.

My wife is a dual citizen and will be sponsoring me for the move to Victoria. We are working with our immigration attorney on this, and our application should be completed fairly soon.

We have the following assets that will need to be reviewed as part of our overall financial plan (we plan on moving to Victoria sometime in May):

• 401(k) from my employer that will need to be converted to an IRA shortly (tax-deferred). The approximate total in the plan is $400,000.
• My wife’s IRA is currently sitting at $800,000.
• Our regular investment accounts, which are currently with Fidelity and UBS, including recently inherited stocks from her father, are sitting around $4.5M.
• We have our house in a revocable trust ($1.3M) that will be sold before we leave. I’ve learned from your podcast that the trust should be dissolved. Let’s chat about this during the planning.
• No ROTH IRA at the moment, but based on some of your articles and the fact that our income is low, we should consider converting some of the IRA.
• I have an LLC through which I do some consulting. I’ll continue consulting for a few more years before fully retiring. Total consulting income should be around $30,000 per year.

With the proceeds of the California house sale, we’ll be buying in Victoria. Should we consider taking a mortgage for the property or just buying something with cash? We’ll be looking at two-bedroom condos in early 2024.

Once again, this stuff is making my head spin, and I really don’t want to make any big mistakes before moving.

How should we proceed in order to start working with you?

Sincerely,

XXXXXXX

Answer

Hi XXXXXX,

Good to hear from you again, and thank you for being a subscriber to the expat podcast and YouTube channel.

We’ll want to schedule a proper sit-down meeting in the office or via Zoom to thoroughly address all of the planning issues mentioned above. That being said, let me give you some general insights in this email to give you something to think about.

• We’ll want to ensure that much of this planning is done well before you make the move in May. After you become a Canadian tax resident, many of your planning options will disappear.
• This might take some administrative time, so you’ll want to get the 401(k) plan administrator to start the conversion process as soon as possible. This goes without saying, but make sure they are making a tax-deferred rollover to the IRA.
• As you mentioned, and depending on your income, we’ll want to review the opportunity for a ROTH IRA conversion. We can discuss the details of this and the related calculations in our meeting.
• Reviewing the non-registered investment accounts will be key. If you have a chance to send me some current statements, we can get a head start on the planning. Simplifying the holdings before you move can save a lot of time and potential tax. For example, T1135 filings could be significant if you have many positions in the account.
• Once the house is sold, you’ll likely want to wind up the revocable trust. If you don’t think the house will be sold before moving to Canada, we’ll want to transfer the house into your personal name and wind up the trust. If you need legal assistance, we can bring in one of our cross-border lawyers.
• You’ll definitely want to wind up the LLC before entering Canada. LLC structures don’t work very well in Canada, especially if held personally. T1134 filings and the potential for double taxation make this a bad structure to have as a Canadian. Likely, running your consulting as a Canadian sole proprietorship is the best bet. Once again, we can chat more about this at the meeting.
• Whether or not you get a mortgage for the house is likely more of a preference. Some clients don’t mind additional debt, and some clients simply prefer to purchase in cash so that the house is debt-free. Considering how high rates are at the moment, you might want to use as much cash as possible. Let’s discuss the pros and cons at the meeting.

I hope the above has given you something to consider. Please try to find a time here for an in-office or Zoom meeting.

I look forward to our meeting and helping with your move to Victoria!

Cheers,

Phil