Case Study: How Caroline and Amanda Prepared for Retirement in Canada with a 401(k) and Roth IRA

The Problem

Caroline and Amanda* are a married couple living in Minnesota who are planning their retirement.

Caroline, a 66-year-old US citizen, manages the couple’s finances and is already retired. Amanda, 64, is a long-term US green card holder originally from Canada who plans to retire within the next year or so. 

Together, they’ve decided to move to eastern Canada once Amanda retires. However, before reaching out to SWAN, they were unsure how to manage Amanda’s US-based retirement accounts, which include a 401(k) and a Roth 401(k). 

As they prepare for this move, they’re worried about making mistakes that could cost them in the future. They want clarity on how to transition financially from the US to Canada while minimizing taxes and complexity. 

Caroline reached out for help after feeling overwhelmed and unsure about what steps to take.

The Solution

The SWAN team began by helping Caroline and Amanda establish a clear plan before their move. We worked with them while they were still living in the US, which allowed plenty of time for strategic financial and tax planning.

Here’s what the process involved:

Maintaining the 401(k) during employment

Amanda continued contributing to her 401(k) while employed, which allowed her to receive employer matching benefits.

Moving other investment accounts now

SWAN opened accounts for Caroline and Amanda. They didn’t realize we can start managing their IRAs and non-registered accounts while they are still US residents. They didn’t need to change currency or trigger a taxable event.

Delaying the 401(k) rollover

Working with SWAN Wealth and a cross-border tax advisor, they decided not to roll over the 401(k) until Amanda officially retired. Once Amanda stops working, she will roll her traditional 401(k) into an IRA and her Roth 401(k) into a Roth IRA. This strategy helps ensure no tax is triggered at the time of rollover, maintaining tax neutrality.

Tax residency planning

The SWAN team is now helping them prepare for the unique tax situation that comes with being a tax resident in both countries during the transition year. By doing this in advance, they’re avoiding rushed decisions and optimizing tax efficiency.

Cross-border tax consultation

The couple also had a cross-border tax consultation with SWAN’s cross-border accountant to understand the implications of Amanda’s long-term green card status. If she were to give up her green card without planning, she might be classified as a “covered expatriate,” which could trigger a significant exit tax.

The SWAN team reviewed this scenario with Amanda and Caroline, so they could consider whether naturalizing as a US citizen would be beneficial before moving.

Why This Works

This strategy works because the clients started planning well before their move, giving them time to make informed decisions. They were able to retain valuable employer benefits in the US while also opening accounts that would serve them well after relocating to Canada. 

Early consultation with a cross-border accountant and cross-border financial advisor helped them avoid costly tax errors. It also helped them understand the legal and financial ramifications of relinquishing a US green card before making any decisions. 

Additionally, by building a relationship with their advisor in advance, they’ve gained peace of mind and clarity, reducing stress during a significant life transition.

The Outcome and How Caroline & Amanda Feel

Now, a few months after their first call with SWAN, the following steps have been taken:

• The couple’s joint non-registered investment and IRA accounts have been fully opened and set up

• Amanda’s 401(k) is still active and will be rolled over after her retirement.

• Their joint investment portfolio has been reviewed to identify any assets that could be transferred “in kind” (without being sold) to Canada.

• The SWAN team has started rebalancing their accounts and is exploring capital gains/losses and planning opportunities.

Emotionally, Amanda and Caroline felt relieved and confident. Caroline, in particular, expressed that she finally felt they were doing the right things and had support through the process.

They were excited to move to Canada to be closer to family and felt reassured knowing their financial foundation was handled. With the guidance and systems in place, they could stop worrying about what they might have missed and focus on the life they wanted to build.

*The case studies and client examples presented on this website are for informational purposes only. Names and identifying details have been changed to protect client confidentiality. These examples are based on real scenarios but do not constitute financial advice. Individual circumstances vary, and you should consult a qualified financial advisor before making any financial decisions.