Cross-Border Wealth Management and Planning for US and Canadian Residents

Written by Tiffany Woodfield, Portfolio Manager, CIM® CRPC® and John Woodfield, Portfolio Manager, CIM® CFP®

If you're looking for cross-border wealth management in Canada or the US, you need to make sure you find and select the right team. Choosing a cross-border wealth management team that understands your situation and with whom you feel comfortable building a relationship can take some time.

As of this writing, there isn't an extensive network of advisory firms specializing in cross-border investment management in Canada. However, the complexities of a cross-border move and the subsequent financial transition go well beyond regular investment management.

For this reason, we recommend that you do some research and meet with a few advisory teams before deciding.

When you find a wealth management team specializing in cross-border and with whom you feel comfortable, you'll be in an excellent long-term position. You'll feel comfortable and relaxed knowing that you have a team that will take care of everything correctly. You'll be able to focus on doing what you love instead of worrying about your investments.

At SWAN Wealth, we specialize in helping families and individuals who have built up substantial assets on either side of the border. Our clients need help managing the financial complexities of a cross-border lifestyle. We have CFPs, dual-licensed advisors, and portfolio managers on our team. In addition, we work with a network of independent legal and tax experts who are also experts in cross-border financial and tax planning.

Over the years, we've learned that there are many misunderstandings about what's required. That's why we've written this series of articles about cross-border financial planning and wealth management.

In this article, we're going to cover the basics of cross-border wealth management so that you're more empowered as you continue your search for the right advisory team.

TABLE OF CONTENTS

1. Cross-Border Tax and Financial Planning
2. Keeping Accounts Legal while Minimizing Costs
3. Your 401(k) and IRA
4. Cross-Border Specialists
5. Cross-Border Financial Planning
6. Cross-Border Financial Planning Reviews
7. Cross-Border Banking
8. Portfolio Management
9. Estate Planning Is More Complex Across Borders
10. Tax Time Doesn’t Have to Be a Headache
11. Why Fragmenting Your Portfolio Isn’t a Great Idea
12. Cross-Border Investment Management and LLCs
13. Who Can Benefit
14. Financial Advisors for US Citizens Living in Canada
15. Financial Advisors for Canadian Expats
16. Transfering a 401(k) to an RRSP
17. RRPSs and RRIFs for US Persons
18. Questions We Hear Regularly
19. How We Help

Cross-Border Tax and Financial Planning

You might have realized that you face a tax problem when you change tax residence and move from the US to Canada. But, what you might not realize is that you also have an investment problem.

Your USA advisor likely cannot actively manage your investment accounts once you are in Canada. And, your Canadian advisor cannot actively manage your investment accounts if you are in the USA. If you close out and cash in your retirement accounts, you may face a significant taxable event. In other words, you might suddenly owe tax that wasn't in your financial plan for the year.

To add to this stress, despite meeting with banks and advisors, you cannot seem to find anyone who understands your exact situation and knows how to make the transition easier. The solution is to work with an advisory team licensed in Canada and the US.

Keep Your Accounts Legal while Minimizing Costs

Some clients we've spoken to have moved to Canada and kept an IRA in the US under a friend or family member's address. Doing so isn't that uncommon. Unfortunately, this is likely against the SEC (Security Exchange Commission) guidelines, which can cause significant issues down the line. We don't recommend doing this.

Just remember that your goal should be to ensure you're onside with the IRS and the CRA without overpaying your tax. At the same time, your US brokerage firm will want to comply with the SEC. Luckily, doing things the right way and having your investment accounts managed for your cross-border lifestyle will likely save you time and money.

Your 401(k) and IRA

If you've built up assets and wealth while living in the US, but now you live in Canada, tax time can become very complicated. You're likely worried about double taxation or having issues with the IRS in the future.

You may also be wondering if you're going to encounter any surprising and costly issues in the future. But, even more importantly, do you know whether your investments are optimized based on your current residence?

If you have an IRA, 401(k), or any other registered or non-registered investment accounts in the US but you live in Canada, you should speak with a cross-border expert. You can work with a cross-border wealth management team to help you simplify and optimize your investments for both sides of the border.

Cross-Border Specialists

Working with a team of cross-border wealth management specialists allows you to receive the best possible guidance for your situation. You will have a guide who understands the impact of having assets in both countries.

You've probably already done substantial research on your cross-border move and finances. But, when you work with experts in cross-border, you won't have to keep researching new topics every week trying to understand the complete picture.

It's easy to miss something important during a cross-border move. The risk of not working with cross-border specialists is that you can fall into traps unknowingly and pay more money to the government. You can avoid spending sleepless nights worrying about your investments when you work with a team with extensive experience in cross-border wealth management.

Cross-Border Financial Planning

Your exact cross-border financial planning needs will depend on your specific situation.

If you are close to retirement, cross-border financial planning will include planning where to draw money from for retirement and what to do with your 401(k) or IRA. It will also include other tax and investment planning strategies, including claiming CPP and social security.

If you are still in the accumulation stage, an excellent cross-border financial plan will ensure that your investments won't lead to an excessive tax bill. It's essential to use the right investment tools as this will prevent complications and tax issues.

Your cross-border financial plan will provide scenarios on when work is optional and how much you can spend to ensure you never run out of money. Lastly, for some, cross-border financial planning focuses on transferring wealth to the next generation in the most tax-efficient manner.

Cross-Border Financial Planning Reviews

When you meet with SWAN Wealth Management for a cross-border financial planning review, the first step is to understand you and your situation.

We often call this the "why." We want to know why you have worked hard to achieve success in your life. What motivated you to make sacrifices? What is crucial for you at this stage in your life?

Only after we understand your "why" do we start to discuss the "how." These are the strategies that will help you achieve your goals. Your goal may be to make sure your family is protected when you are gone or to avoid making mistakes that cost you more tax. You may want to know how to plan an income now, and in the future, so you finally feel free to travel or plan your next adventure.

We have found that our clients are often concerned with the rollover process. If they have multiple accounts in the US, such as IRAs and 401(k)s from different employers, they want it to be simplified. That way, when the time comes to take money out, they are ready and onside with the IRS.

In a cross-border financial planning review, these are some basic questions we ask to provide you with solutions:

1. What is important to you?
2. What are your goals?
3. Do you have multiple accounts in the US?
4. Have you contributed to social security and CPP?
5. Are you selling properties in the US or Canada?

These are common questions you may have that we can help you with:

1. Am I entitled to both CPP and social security, and when should I claim?
2. Can I have non-registered taxable accounts in the US as a Canadian resident?
3. How will tax reporting to my accountant work and can it be made easier?
4. What investments receive favourable tax treatment in Canada to leave more money in your pocket after taxes?
5. Can you recommend a cross-border accountant?
6. Can you recommend a cross-border lawyer?

We can answer all of these questions and more during a cross-border financial planning review call.

CLICK HERE to schedule an introductory call with a SWAN Wealth advisor.

Cross-Border Banking for US Persons

If you recently moved to Canada from the US, your credit history doesn't transfer across the border. It is essential to open a bank account in Canada right away and apply for a credit card so you can start to establish credit in Canada.

If you still have your US bank account, it is good to keep it for the future when you start taking social security payments. Also, keeping your US credit card can be helpful as you already have the credit rating, and you can pay it off with your US bank account.

In addition, if you need to do a money transfer across the border, I have had several clients give feedback they have had a good experience with Wise.com

Portfolio Management

Many families who are looking for wealth management prefer to work with a portfolio manager (PM). Portfolio management licensing allows your PM to manage your investments on a discretionary basis, which enables them to adjust as markets change very efficiently. A portfolio manager and the firm they work with, require formal training and certification. In addition, because portfolio , you can feel confident they are buying and selling securities that are in your best interest.

Finally, the cost of working with a portfolio manager outside of registered accounts is tax-deductible in Canada and all portfolio managers are fiduciaries.

Estate Planning Is More Complex Across Borders

When you have worked hard and made sacrifices, you often don't want to leave your legacy to chance. Planning is essential if you wish to set up your kids for success, protect your legacy, or give to your favourite charity.

When you have a cross-border estate, you are at risk of double taxation. There is the risk of your assets being tied up after you pass. And without careful planning, managing your estate will likely be challenging for your loved ones. I encourage you to get this organized now. Being organized will mean your money will go where you intended, rather than be wasted in legal fees or taxes.

Tax Time Doesn’t Have to Be a Headache

Usually, tax time for cross-border clients is more stressful and can be expensive. But it doesn't have to be this way.

Working with an excellent cross-border wealth management team can reduce tax-time headaches. Your team will understand the common tax reporting pitfalls and how to avoid them. They'll work with your accountant to ensure everything is done correctly and taken care of for you.

A cross-border advisory team helps prevent tax-time nightmares in the following three essential ways:

1. They know the investments that will cause additional headaches for your accountant, and they will steer you away from these investments.
2. While banks will not likely provide you with all the slips your accountants need at tax time, your cross-border team will. You will need the full tax slips for your investments in Canada and the US. Having this reporting done correctly is essential.
3. Cost base tracking is also critical, and many accountants prefer not to take on this time-consuming responsibility. When you work with a cross-border wealth management team, they will track the cost bases of your investments for Canada and the US. When you sell an investment, your accountant will need to know the two different cost bases of the investment. The correct tracking is required to calculate and report capital gains properly so you don't overpay or underpay your taxes.

Keep in mind finding an excellent cross-border accountant can be difficult as they are in high demand, so when you have one, you want to keep them.

Why Fragmenting Your Portfolio Isn’t a Great Strategy

I recently had a client say, "I thought diversifying was having different advisors." However, having more than one advisory team can have the opposite effect. You may end up less diversified. Let me explain.

You may be invested in the same assets or relatively similar assets with the two teams. In other words, you might have an unbalanced portfolio if you work with two different advisory teams.

Working with one advisory team in the US and another in Canada is not ideal. One hand does not know what the other hand is doing. Thus, you may have a portfolio that is less diversified than it should be. It will also be challenging for your advisors to react quickly when the market changes.

Cross-Border Investment Management and LLCs

At SWAN Wealth, several of our clients who moved to Canada from the US have had an LLC (limited liability corporation). It is crucial to speak to your cross-border accountant about your particular situation if you have an LLC.

LLCs are usually taxed differently in Canada than in the US. In the US, if you have an LLC, it is considered a "disregarded entity" by the IRS which means it is taxed to you personally. The LLC doesn't file as a separate entity. In Canada, the LLC is considered a separate entity and files an individual tax return.

What this means is your foreign tax credits may not match up, causing complications at tax time.

Who Can Benefit from Working with a Cross-Border Wealth Management Team

A US person living in Canada will need to file taxes in both countries. Working with a cross-border wealth management team is helpful if you want to avoid complications caused by investments that your accountant may consider PFICs (passive foreign investment companies). A cross-border wealth management team will help US persons living in Canada with estate planning, tax planning, financial planning, and wealth management for both sides of the border.

If you have retirement accounts and assets in the US, you can benefit from working with a cross-border team. Your team will help ensure your 401(k) and IRA are managed appropriately so you don't get a surprise tax hit.

If you have inherited an IRA, it can be helpful to work with a cross-border wealth management team. They will understand how to manage these accounts from Canada and help provide advice so you will not have to collapse the IRA.

Financial Advisors for US Citizens in Canada

If you are a US citizen living in Canada, you will continue to have to report your worldwide income to the IRS and the CRA in Canada. To avoid double taxation, your cross-border accountant utilizes foreign tax credits to offset the tax in one country against the other. The complications come in if your advisor has invested you in vehicles your accountant considers PFICs (passive foreign investments companies). Often these are Canadian mutual funds and Canadian ETFs.

Your cross-border wealth management team will ensure your investments are optimized for both sides of the border. They will also do all the required tracking and reporting so that you can stay onside with the IRS.

Financial Advisors for Canadian Ex-Pats

If you are a Canadian moving to the US, it is wise to have a financial advisor who can help you whether you live in Canada or live in the US.

Some examples of situations where you can benefit from advice include:

• Timing of when to take payments from Canadian and US pension plans
• Assistance with currency
• Investing in Canadian or US currency on both sides of the border
• Managing RRSPs and IRAs whether you live in Canada or the US
• Determining which assets should transfer to the US and which should stay in Canada
• Cross-border financial and estate planning taking into consideration assets and beneficiaries on both sides of the border

Transferring a 401(k) or IRA to an RRSP

While transferring a 401(k) or IRA to an RRSP may be an option, it is usually not the best solution. You would need to speak to your cross-border accountant as it is rarely a tax-neutral event, and there is an increased risk of double taxation.

In simple terms, everything needs to be in perfect alignment to make such a transfer tax-neutral. Your foreign tax credits would need to match up perfectly. It would be wise to have a conversation about this with your cross-border accountant to determine if it is an option.

You may instead choose to have your IRA managed with a dual-licensed financial advisor. Again, it's best to speak with your cross-border accountant about this first.

RRSPs and RRIFs for US Persons in Canada

RRSPs are recognized by the Canada/US income Tax Treaty and have clear guidelines. They are a good tool if you are working in Canada and are eligible to contribute. For US citizens, there is no additional reporting when contributing to an RRSP.

An RRSP must be converted to a Registered Retirement Income Fund (RRIF) by December 31st of the year you turn 71. When you take an RRIF withdrawal, this is considered taxable income. You will need to report this taxable income on your Canadian and US tax return. However, using foreign tax credits means you usually will not have to pay extra tax despite withdrawing from your RRIF.

Questions We Hear Regularly

These are a few questions we hear regularly which we can answer in an introductory call:

• If I give up my green card can I still claim social security?
• What happens if I just keep my taxable brokerage account in the US?
• Can I move my IRA to an RRSP?
• I got a letter saying I have 30 days to move my US investment account or it will be closed.
• If I have multiple 401(k)s can I move them to an IRA?
• Can I keep my current financial advisor in the US?
• What do I do if I inherit a trust from my parents in the US?
• What investments will not cause additional headaches?
• What can I do with my Roth IRA?
• Do I have to convert everything to Canadian currency when I move?
• Can I have my US investment accounts actively managed while I live in Canada?
• I am worried about paying double taxation. How can I avoid this?
• I don’t understand filing in two countries. Do you know an accountant that can file in Canada and the US?
• How do I take RMDs, required minimum distributions, (withdrawals) when it is time, or sooner? Will I pay a penalty?
• How do I make sure I am onside with the IRS but not overpaying in taxes?
• Can I contribute to an RRSP?
• Can I contribute to an RESP or TFSA?

What people don’t ask but should consider are these important questions:

• What happens if I have an executor of my estate that is living in the US?
• What happens if I leave my accounts in the US and I live in Canada
• What happens if I pass away and still have my accounts in the US with a friend's address?
• What happens if I invest in what my accountant called PFICs?
• What happens if I don’t work with a team that understands the complexities of having to report in two countries?

We can answer these questions, or direct you to a cross-border lawyer or cross-border accountant, and get your team working together.

CLICK HERE to schedule an introductory call with a SWAN Wealth advisor.

How We Help

Below are just some of the services we offer our clients at SWAN Wealth Management. It’s our job to guide you towards achieving your financial goals.

We are here to help you navigate every important financial milestone from optimizing your cross-border investments to moving towards a work-optional lifestyle and beyond. We’ve been helping families and individuals achieve their financial goals and dreams for over 25 years.

At SWAN Wealth we can assist you with the following:

• Manage your IRA and retirement accounts from Canada or the US.
• Offer a pre-immigration consultation from a tax perspective before you move.
• Coordinate a cross-border accountant and lawyer when necessary.
• Provide guidance on retirement benefits such as CPP, social security and Medicare.
• Transfer your investments from the USA to Canada keeping them in a tax-deferred account.
• Choose holdings tailored to your individual needs.
• Hold investments in US and Canadian currency on both sides of the border.
• Minimize your tax burden by creating a tailored financial plan.
• Manage your investments over the long term so you can enjoy your work-optional lifestyle and income streams that support your goals and dreams.
• Provide access to and management of your investments no matter on which side of the border you live.
• Help to prevent tax issues by knowing the tax implications of various investment strategies and providing advice on how to move forward.
• Create a financial plan that serves you in the short and long term.
• Act according to our fiduciary duties to ensure every aspect of your financial plan is in your best interest.
• Work in close partnership with your accountant and lawyer to ensure your cross-border strategy is optimized to minimize tax and other costs.

Next Steps

If you’re a Canadian resident or are planning on moving to Canada and need assistance with moving your investments, estate planning, and portfolio management, please get in touch. At SWAN Wealth we specialize in Canadian financial planning, cross-border financial planning and cross-border wealth management.

More Canadian Financial Planning Articles & Guides

If you’re planning a cross-border move, these articles and guides will help you simplify your move and make sure you’ve got everything covered.

Cross-Border Estate Planning Guide

Roth IRA Canada: How to Manage Your Investments Across the Border

The Ultimate Financial Planning Resource for Dual Citizens or Green Card Holders Living in Canada401k in Canada - How to Stay Onside with the IRS and Avoid a Large Tax Bill

Retiring to Canada - A Financial Planning Guide

Financial and Tax Planning for US Citizens Living in Canada

Canadian RRSP Facts for Dual Citizens, Expats and Canadians

About the Author

Tiffany Woodfield is a Portfolio Manager licensed in Canada and the USA, 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 want 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 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.

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