Author Topic: Moving from US to Canada - should I stop contributing to tIRA / 403b / 457?  (Read 2804 times)

FLBiker

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I'm married, and our household income is ~$120K.  We typically use tIRA / 403b / 457 investing to knock this down to ~$65K.  Our thinking (obviously) is that we'd pay more taxes now (with higher income) than in early retirement (with lower income).

However, we're planning to move to Canada next year.  Thus, this probably isn't true.  With that in mind, we converted our tIRA's to Roth IRAs last year.  We still contribute to 403bs / 457bs though.  Should we stop, and just leave that money as taxable?  If we end up moving next year (as opposed to this year) we'll max out our Roth's again, but my thinking is that our tax rate now (22/24% for that 65-120K) is actually lower than it would be in early retirement in Nova Scotia (where it looks like the tax rate on the first $25K is 23.79% and it only goes up from there).  There are a lot of variables around the move, but I'm thinking we'll retire somewhere in the next 5-10 years on something like $50K per year.  Oh, and we're in Florida, so we have no state income tax.

Intellectually, I think the smart thing is to stop contributing to our tax advantaged accounts (other than the Roth IRAs) but that runs so counter to what we've been doing I want to confirm.  Is my thinking right?  Should we just hold the money in our taxable account instead?  And if any other additional info would be helpful, please don't hesitate to ask.

Thanks!

« Last Edit: July 11, 2019, 07:45:14 AM by FLBiker »

salt cured

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However, we're planning to move to Canada next year.  Thus, this probably isn't true.  With that in mind, we converted our tIRA's to Roth IRAs last year.  We still contribute to 403bs / 457bs though.  Should we stop, and just leave that money as taxable?  If we end up moving next year (as opposed to this year) we'll max out our Roth's again, but my thinking is that our tax rate now (22/24% for that 65-120K) is actually lower than it would be in early retirement in Nova Scotia (where it looks like the tax rate on the first $25K is 23.79% and it only goes up from there).  There are a lot of variables around the move, but I'm thinking we'll retire somewhere in the next 5-10 years on something like $50K per year.  Oh, and we're in Florida, so we have no state income tax


I'm no expert but the bolded part above doesn't seem correct (e.g,. https://neuvoo.ca/tax-calculator/Nova+Scotia-25000 though I'm not sure about this source). Also, taxes are individual in Canada. So if you were going to need to withdraw $25k, assuming your assets are split pretty evenly, you could do half and your spouse could do half and each would be taxed only on that half (at a lower rate).

FLBiker

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Interesting, thanks for that.  I was just going off a rate table (https://www.taxtips.ca/priortaxrates/tax-rates-2017-2018/ns.htm), and I wasn't factoring in deductions.  I also didn't realize that taxes were individual in CA.  It seems like it might not be a bad place for early retirement...


salt cured

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The "deductions" listed on that website are just what you would owe on wage income. I'm not sure whether investment income is subject to CPP and UI.

But wait, wouldn't you pay the taxes on deferred income earned in the US to the US?

Goldielocks

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The "deductions" listed on that website are just what you would owe on wage income. I'm not sure whether investment income is subject to CPP and UI.

But wait, wouldn't you pay the taxes on deferred income earned in the US to the US?
Sort of.  You file taxes in Canada (resident) and US (non-resident).  The US taxes paid are a tax credit on your Canadian return, and after Cdn taxes are calculated on full income, you subtract the foreign tax credit and pay the net.

Splitting income in retirement works very well in Canada.   On $29k taxable income each (with the last $6k coming from Roth or TFSA or non-registered selling / cap gains), you have 15.4% average tax rate and 24% marginal rate.

The CPP payout is lower than the SS payouts, typically (although SS seems to be throttled at higher rates?), but then there is the OAS which is paid out based on number of years in Canada, on a pro rated basis, after you have been here for more than 10 years, and are over 65...  so you can move when you are 60, and start receiving payments when you are 70 at 25% of the full OAS amount.  That would help!

If you get a match, keep investing to get it.  For certain.   I would also just max the Roth and keep investing the rest in the tax sheltered accounts for now.  When you have a low income year, you can shift more $$'s from the retirement account into your TFSA / Roth.
« Last Edit: July 13, 2019, 08:38:35 AM by Goldielocks »

FLBiker

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Thanks for all the info!  We're not sure at this point if we'll get CPP or SS (I haven't done my research yet, but as I understand it the credits are somewhat transferable).  Regardless, we're not counting on either in determining our FIRE number.  And OAS will be a nice bonus!

If you get a match, keep investing to get it.  For certain.   I would also just max the Roth and keep investing the rest in the tax sheltered accounts for now.  When you have a low income year, you can shift more $$'s from the retirement account into your TFSA / Roth.

Just to be clear -- we can only transfer from tIRA to rIRA BEFORE moving, right?  Once we move (likely next year) we need to just declare our Roth to the CRA and stop contributing.  We've already converted our tIRAs.  We could theoretically do our 403bs, but we can't convert those until after we're no longer working here, and we'll have landed as PRs before that (we're planning to land in January 2020, move in May / June 2020).  To keep it clean (in terms of Roth contributions) our plan is to keep the 403bs as tIRAs.  Does that make sense?

Goldielocks

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Any roll overs on the US side need to be done while you are resident.

FLBiker

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Any roll overs on the US side need to be done while you are resident.

Just to be clear -- you're talking about Roth rollovers, right?  We could go from a 403b to a tIRA after moving, right?  If not, the timing might be kind of tight because we can't move 403bs until we're no longer working here, and my wife is a 9 month instructor and thus is "employed" over the summer even though we'll be moving over the summer...

Goldielocks

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All rollovers... as far as I am aware.   e.g., 401k to IRA, etc.