– Are you a Canadian considering moving to the U.S.? Or do you already live in the US? Retirement might not be as easy as you think.
In this episode, Jeremy Keil invites Joe Curry, B.Sc., CFP, CHS, to talk about how you can get the most out of your U.S. and Canadian Retirement accounts. This episode dives deep into the differences that Canada and the U.S. have when it comes to retirement accounts, taxes, pensions and benefits, and more. This episode aims to show you the retirement factors you need to think about before moving to the U.S.
- The retirement accounts you should take or leave in Canada
- The tax treaty between Canada and the U.S.
- How do the Canadian Pension Plan and Old Age Security work if you reside in the U.S.?
- Moving your portfolio into a self-directed account
- And more
How To Get The Most Out of Your U.S. and Canada Retirement Accounts
Can You Have Investment Accounts In Both The U.S And Canada?
Having an RRSP and an IRA is completely possible when moving to the U.S. from Canada. Your RRSP funds stay put even when you relocate, but moving them means paying withholding taxes. So, you might decide to leave them alone and contribute under the same rules as your U.S. neighbors.
But, to avoid extra taxes, it’s smart to hang on to your Canadian retirement accounts – that’s your RRSP and LIRA (Locked-In Retirement Account) if you have one. These are the accounts you want to keep up in the Great White North while working in the U.S.
When it comes to your investments, you can set up non-registered accounts to keep the journey going. Just watch out for firms with both U.S. and Canadian branches; they can still manage your assets in this dual-country setup.
As for your Canadian real estate, you can keep it, but there’s a catch – you won’t have anyone to look after it for you. So, some folks prefer to cash out on their Canadian properties when they move and use that money to start fresh with investments in the U.S.
What Is A Locked-In Retirement Account?
In Canada, the pension plan you have through your employer must be handled if you leave your job or get terminated. One of your options could be to transfer it into a LIRA. Savings held in a LIRA are held “locked in,” meaning they cannot be withdrawn until retirement.
Similar to an RMD, there are regulations around how you access this money. You won’t be able to access it until after the age of 55, and it restricts you from using your money for things like housing or education costs. However, it guarantees that the funds will be there when it’s time to retire.
The Tax Treaty between Canada and the US
Once you reach the age of 71 in Canada, you have to transition from an RRSP into a RIF, also known as a Registered Retirement Income Fund. Because an RRSP is intended for savings purposes, it must flip over to an RIF for distributions. It’s similar to an RMD from the U.S., which starts at the age of 73. While it’s possible to switch to an RIF at any time and take withdrawals from an RRSP, you still have to pay withholding tax.
There is a tax treaty between Canada and the US meant to alleviate tax issues for U.S. citizens residing in Canada and vice versa. It’s recommended that you work with an accountant, who has experience in cross-border taxes, that will help you get withholding tax from the Canadian retirement accounts back. This is a process that you need to apply for as soon as you can. If you do nothing, you may be subject to double taxation.
There are plenty of rules and regulations that you need to follow when it comes to the Canada-US tax treaty.
If you paid foreign taxes on your investments, you might have an international account. These accounts help with deductions or credits that are on your US taxes.
It’s easier for Canadians moving to the US because most of the world bases their tax system on your residency. However, the US is based on citizenship so when you come to Canada, there are still some restrictions around filing your taxes in the US and in Canada.
The Canadian Pension Plan and Old Age Security
The Canadian Pension Plan is what you contribute to when you work in Canada. Your employer will contribute to CPP for you while you work for them. It will be paid based on when you take it, how much you contributed, and what your average earnings were. So, it will still pay out since you contributed to it even if you lived in the US.
Old Age Security is a government benefit instead of a contributed pension plan. Depending on how long you have lived in Canada, you can receive this benefit during retirement. You can get both Old Age Security from Canada and Social Security from the US because Old Age Security depends on how long you have lived and worked in Canada. For example, if you lived and worked in Canada for at least 20 years after the age of 18, you can receive that security even if you don’t live in Canada anymore.
You can get Social Security even if you are receiving a pension from Canada. The difference is that they have something called the Windfall Elimination Provision, which basically says if you worked and paid into Social Security for less than 30 years in the US, then they withhold a certain amount from Social Security.
How to Get the Most Out of Your Canadian Pension Plan
The way it works is you contribute a percentage up to the yearly maximum pensionable earnings or the YMPE which is around $67,000. If you make over this number, you’re making the maximum contributions.
The normal retirement age is 65, so they will let you throw out your eight lowest earning years. For example, if there were a few years where you didn’t work or you made less money, they will remove eight years and take the average pensionable earnings over the remaining years to calculate your benefit. Then, you will get the full benefit up to what you’re eligible for at age 65.
You can take it earlier, but you will have to pay a penalty of 0.6 percent per month. It’s similar to Social Security in a way because the longer you delay claiming benefits, the larger your guaranteed income will be.
To learn more about How To Get The Most Out of Your U.S. and Canada Retirement Accounts, check out the resources below!
If you have any questions, feel free to contact us or our guest Joe Curry using the contact information provided below!
- Free Retirement Planning Video Course: 5stepretirementplan.com
- 3 Things You Should Know Before Choosing A Financial Advisor
- 7 Questions That Could Make or Break Your Retirement
- Subscribe to Retirement Revealed on Google Podcasts
- Subscribe to Retirement Revealed on Apple Podcasts
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- Book a call with Jeremy
About Our Guest:
Joe is the Senior Financial Planner and Owner of Matthews + Associates, a premiere retirement planning firm in Peterborough, ON, Canada.
As a CFP Professional, Joe & the team at Matthews + Associates help people over age 50 achieve True Wealth.
Matthews + Associates has created the free True Wealth Assessment process. This was designed to show you how we can help you before you ever pay us a penny in fees or trust us with any of your hard-earned wealth.
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Keil Financial Partners does not provide any tax advice. No information or results from the links should be interpreted as tax advice. Please seek guidance from a qualified tax professional for any and all tax-related matters.
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