How to Turn Your 401k to a RRSP If You’re a U.S. Citizen Moving to Canada

Many of our cross-border clients have come to us after receiving a letter from their US brokerage first stating they have 30-60 days to either close and liquidate their account or find another advisor who can manage it. This is because it is against the Security Exchange Commission (SEC) guidelines to manage assets and provide advice for non-US residents. These clients are then frantically scrambling to understand if they can move their 401(k) to an RRSP.

Can you turn your 401k to an RRSP?

Moving your 401(k) to Canada without proper advice or planning can mean a significant tax bill. Although the Canadian-US Tax Treaty allows plan participants to transfer a 401(k) to an RRSP, this may not be the best option. This transfer is not a tax-free event, but it may be tax neutral in a very narrow set of circumstances. I would recommend consulting with a cross-border accountant before you consider this. Another option may be to rollover your 401(k) to an IRA and have the IRA managed with a dual-licensed financial advisor. This does not cause you to owe additional tax.

What are your options for transferring a foreign pension to a RRSP?

For a client to understand how to move a 401(k) to an RRSP consider this example:

Jessica is a retired professor living in California. She wants to move back to Canada, but doesn’t want to lose a considerable chunk of her retirement investments by liquidating her 401k. Here’s what she could do.

• She could transfer her 401(k) to an RRSP, which is very complicated. It also could lead to double taxation if not done correctly.
• Jessica could also rollover her 401(k) to an IRA and have it managed with a dual-licensed cross-border financial advisor. Doing so would not cost Jessica additional tax, and an IRA may be a better option. With an IRA if Jessica passed away any of Jessica’s beneficiaries can open an inherited IRA and not pay tax for up to 10 years, or longer if they are Jessica’s spouse. With an RRSP the account can only continue to grow tax-deferred if her spouse is the beneficiary. With any other beneficiaries the estate has to pay out tax right away.

401k Problem Solving for U.S. Citizens Moving to Canada

If you are a U.S. citizen moving to Canada, before you purchase an annuity, close out an account, or transfer a 401(k) to an RRSP, speak to a cross-border team to help you mitigate a taxable event.

It isn’t just your finances that may cause you stress. We have created a moving checklist of things to take care of before you move.

Final Cross-Border 401(k) Tip

If you are a US citizen moving to Canada with a 401(k), it may seem overwhelming not knowing what to do. We have often had clients say that just when they start to feel they understand one thing, they didn’t even consider another complication. If you work with a cross border financial advisor and accountant, they can help make the transition easier.

Summary of Key Points:

• You can move a 401(k) to an RRSP, but it is rarely a tax-neutral event.
• Keeping your 401(k) in the US by giving an alternate address while you live in Canada is against SEC guidelines.
• If you have a foreign pension and want to transfer to an RRSP consult with a cross-border accountant first.
• An option that does not cause a taxable event is to rollover your 401(k) to an IRA and have managed with a dual-licensed cross-border advisor.

What’s Next?

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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About the Author:Tiffany Woodfield is a dual-licensed financial advisor and the co-founder of SWAN Wealth Management along with her husband John Woodfield. Tiffany specializes in advising clients who live both in Canada and the United States and need to simplify their cross-border financial plan, move their assets across the border, and optimize their investments so they can minimize their tax burden. Together Tiffany and John Woodfield, CFP and Portfolio Manager, help their clients simplify their cross-border finances and create long-term revenue streams that will keep their assets safe whether they live in Canada or the US. Click here to schedule an introductory call with SWAN Wealth Management.