Post FIRE Withdrawal Plans - Dual US/Canadian family living in Canada

[Modern Fimily]

Hello all! Any input / constructive criticism is greatly appreciated.

Person 1: 33 y/o dual US/Canadian citizen
Person 2: 31 y/o Canadian citizen
Person 3: 1.5 y/o child
Person 4: Hopeful babes 2 in 2021

We are currently living in Calgary and reached our FI number for a family of 3 and have $25k to go for our hopeful family of 4 number (will be there at some point in 2020). No plans to ever leave Canada.  Person 2 has already retired early and Person 1 is working part time as a transition to RE with the aim to take 18 months parental leave when babes 2 is born to start early retirement with a hedge against sequence of returns risk.

Our post FIRE annual spend will be $35,000/year and we will have $875,000 in passive investments (stocks, bonds, cash cushion - no additional real estate besides primary residence). Home and car paid off. No debt. About 70% of our investments are in USD (401k, IRA, and Vanguard taxable brokerage account in the US) and with the USD/CAD exchange rate we view this as a hedge getting us below a 4% withdrawal rate, closer to 3%. (We understand the USD/CAD exchange rate will vary.) Additionally, with the Canadian Child Benefit combined with our low post-FIRE income, that tax-free benefit will further reduce our withdrawal to ~2%. (We understand CCB benefits are subject to change. The CCB will offset our expected child related costs. When CCB is gone we expect our annual expenses to go down too as kid costs will be substantially lower.)

Trying to figure out the best way to withdraw from our portfolio. We currently have funds in the following accounts:

Person 1:
401k, IRA, HSA, taxable US account, US pension, RRSP, taxable Canadian account

Person 2:
RRSP, TFSA, RESP, taxable Canadian account

Note due to what we’ve read online, Person 1 does not have a TFSA open and the RESP is solely in Person 2’s name for tax purposes.

Our thoughts are as follows:
- We will only need to withdraw ~$25,000/year vs $35,000 due to CCB. We should be able to pay 0% taxes as we fall under the Federal Basic Amount and Alberta Basic Amount. And we are well under the ~$79k in capital gains withdrawal amount in the states.
- Withdraw from our taxable accounts first (Canadian first than US as MERs are higher in Canada)
- Withdraw from our RRSPs
- All the while work on the Roth Conversion Ladder for the 401k and IRA into a Roth IRA (are they any red flags for a dual citizen to do this???)
- Withdraw from Roth IRA
- Save TFSA for last / use if there’s a major event in a given year to keep us in the 0% tax bracket and save vs RRSP as not to impact our OAS payment.

We are viewing Person 1’s HSA, US pension, SS/CPP as icing on the cake in later years. Same for any unused RESP that can get rolled over to Person 2’s RRSP (we saved a little room here for that purpose).

Any noticeable red flags?? Anything you’d suggest doing otherwise??

Thank you in advance!

[Stasher]

@Chaplin @Goldielocks if you could share some of your great insight with respect to the US side of things for @Modern Fimily  that would be awesome. I invited them to the forums as it has been an amazing source of information and support over the last 7 years for me.

[Chaplin]

The rules around withdrawing from US investments like IRAs and, I assume 401Ks, lead to penalties before age 59.5. US citizens/residents use IRA ladders and other wizardry to get around this, but you may have a better option. At least part of the reason that Stasher batsignalled Goldielocks and me is that we both lived in the US in the past and had US retirement savings. It was a comment from Goldielocks that first put me on to how to transfer from an IRA to an RRSP.

With a great deal of help from her and from a tax accountant I was able to complete that transfer earlier this year. The big advantage to this is that once it's in an RRSP you can withdraw it anytime without penalty (other than it being taxable income) which you can't do when it's an IRA or 401K. Other advantages include simplicity, consolidation, and the ability to do trades to rebalance (which I wasn't able to do when the account was in the US). Many US brokerages are also unwilling to deal with accounts held by non-residents.

If you're interested in pursuing that option, either of us can provide some direction. I have no doubt that Goldielocks fully understands it whereas I just muddled through. I can also point you in the direction of a tax account who might be able to help. It took a while to find one who understood how to do this transfer as it's a fairly obscure bit of tax law.

Having US dual-citizens avoid TFSAs matches with what I've read too. When you quote $875K in passive investments, is that US or Canadian dollars?

[Modern Fimily]

Thanks Chaplin for this info. I have never heard of being able to transfer an IRA to an RRSP - this is something I would definitely be interested in for the reasons you mention above. Would love to learn more if you and/or Goldielocks are able to help.

I am staying away from TFSAs under my name, we are maxing out my partners TFSA as she is only a Canadian citizen.

Of the $875k in passive income, about 70% is in US dollars (mostly within my 401k from my previous employer in Fidelity (which I can roll into an IRA to do this RRSP conversion) and taxable accounts in Vanguard with the remainder in my checking account in BoA and IRA that’s also in Vanguard) and the other 30% is in Canadian dollars (mainly within Questrade in my RRSP & taxable brokerage account, Motive high interest savings and a checking account with TD). If I converted the 70% in USD to CDN we’d be dropping our withdrawal rate down by 1%.