Should You Move Your 401k to Canada?

As a US citizen, dual citizen or green card holder, it’s common to get frustrated when you try to find information on what to do with your 401k once you live in Canada. It often appears that moving your 401k to Canada is an impossible task.

You might be wondering:

• Will you have a major taxable event?
• How can you avoid it?
• Do you have to move all your investments to Canadian currency?
• How will you plan an income stream now and in the future?

In addition, you cannot seem to find anyone who can help you understand what your options are for moving your 401k to Canada.

Moving to Canada with a 401k

Once you move to Canada and are no longer a resident of the US, your brokerage firm has strict rules that may force you to close your 401k. If you don’t do so, it will become restricted. You usually get 30-60 days to either find another advisory firm or your account will be closed. This can be a startling situation, as suddenly the clock is ticking on you finding the right solution.

You Can’t Bring Your 401k to Canada, But You Can Do This

Unfortunately, you cannot directly move a 401k to Canada. However, one option is to rollover your 401k to an IRA and have it managed with an advisor who is licensed in Canada and the US.

Here’s a quick example:

Peter worked at Stanford University in California as a professor and built up savings in his 403b and 457 retirement plans. His wife Mary worked at a large IT company and has accumulated significant savings in her 401k. They have now retired and want to move back to Canada to be closer to her parents.

The issue they face is they don’t want to lose a huge chunk of their retirement investments by liquidating their 401k and 403b. To bring their accounts to Canada, one option is that they can roll over their 401k and 403b into an IRA and have it managed from Canada with a dual-licensed financial advisor. This simplifies their situation and makes it easy to plan an income stream and have investments managed according to their needs. In other words, this makes it easier for them to enjoy their next adventure without worrying about their investments.

Moving Your US Retirement Plan to Canada: What are the issues if you have a 401k or IRA in the US and you are living in Canada?

SEC Guidelines

If you are living in Canada but have given your US brokerage firm an alternative US address, this is against the Security Exchange Commission (SEC) Guidelines. It is only a matter of time before you receive a letter stating you have 30-60 days to find another advisor who can manage your account or it will be liquidated, resulting in a major taxable event. Not only is it against the guidelines to use a friend or relative’s address in the US, but when you start taking out required minimum distributions, it may cause state tax issues. The last thing you want when living in Canada is to have tax issues in the US.

Frozen Assets

If you don’t move your account, your 401k or 403b will be essentially frozen and not actively managed. What this means is if you keep the investments in the US and are now a non-resident, your brokerage firm’s hands are tied and they can no longer make changes to your account according to your needs. This creates unwanted risk as you aren’t actively protected from market problems. In addition, if you have investments at several firms, you can be overexposed in some areas and underexposed in other asset classes. Then it is up to you to look at all your statements and make sure they collectively reflect your risk tolerance. This can be stressful, and it’s much simpler if you have your entire portfolio handled by a single wealth management team.

Income Streams

It is difficult to plan income streams or contingency plans when you are living in one country and your advisor doesn’t have experience with clients in your situation. If you aren’t sure of the rules or penalties, you can end up paying more to taxes than necessary. There are even special considerations if you live in Canada and your beneficiaries are in the US. You may question if you can have a Canadian RRSP and a 401k. Or you might wonder what to do if you have a 401k as a Canadian working in the US. These issues can be easily taken care of by a cross-border financial advisor who can create a plan based on your goals and needs.

What Should You Do?

It can feel overwhelming as a US person living in Canada and trying to plan your financial future. Having a cross border financial advisory team who can explain and simplify things for you provides relief. A cross-border financial advisor will have a network of cross-border accountants and lawyers that can help you avoid the common pitfalls which often result in a large tax bill.

A cross-border financial advisor will help you avoid unnecessary taxes while optimizing your investments and income streams for both sides of the border.

Summary of Key Points:

• There are options to move your savings in a 401k to Canada.
• You should not use an alternate address in the US while you are actually living in Canada.
• Your 401k or 403b will likely become restricted once you reside in Canada which creates unwanted risk as you can’t adjust to market problems in a timely manner.
• Having your retirement assets managed where you are living makes it much easier to plan for the future and helps with estate planning.
• You can move your US retirement plan to Canada as long as you follow the correct steps.

Your Next Step:If you are thinking about moving your retirement plan to Canada, please book a consultation to learn about your options.

Schedule a call below to speak with a SWAN Wealth Financial Advisor and begin the process of simplifying your cross-border finances.

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