With Canada’s immigration system weighted to favor the young, few newcomers look into how their Social Security benefits will transfer, how remote workers can save for retirement, or how their move will impact their disability coverage.
I’m not a financial planner, an eldercare attorney, or any other type of specialist. I’m simply someone who takes life planning a little more seriously than most. Everyone’s situation is different, so you should always do your own research or consult a professional. This is information to help you start the conversation and know what to ask about.
If you’re in that sliver of the population who wants to make sure your ducks are in a row for the future, here’s what you need to know.
Government retirement plans
Canada has the Canada Pension Plan, Quebec Pension Plan, and Old Age Security. They’re the Canadian version of Social Security in the US.
So long as you work for at least one year, you’ll qualify for the Canada Pension Plan (CPP) or Quebec Pension Plan (QPP). Service Canada can provide an estimate of your future payments. There is no payment for spouses who did not contribute to the system, but you can split payments between two spouses.
Before you start to get nervous, the US and Canada recognize contributions to each other’s government retirement plans. Contributions you’ve made to Social Security in America will count towards CPP and QPP in Canada.
Old Age Security (OAS) is determined solely on how long you’ve lived in Canada, not your contributions. You’ll need to have lived in Canada for 20 years after your 18th birthday in order to qualify for OAS. Once you qualify, Canada will recognize years you’ve lived in the US as counting towards your total. You’ll qualify for maximum OAS benefits if you’ve lived in Canada and/or the US for 40 years as an adult.
You can still qualify for Social Security, regardless of where in the world you live. The number of American retirees living abroad is proof that Social Security is happy to direct-deposit your SSI each month. If you left the US before you qualified for Social Security, you can apply your contributions to the CPP or QPP in order to qualify. Social Security provides benefits to spouses who did not directly contribute to the system.
Before you get excited, if you apply to receive both CPP/QPP/OAS and Social Security, your payments will be reduced by the “windfall elimination provision.” I’m not sure who thinks OAS+SSI is a ‘windfall’, but clearly someone does and they’re going to keep you from gaming the system.
Private retirement plans
In the US, many people have individual retirement plans (IRAs). You can only contribute to an IRA if you have taxable income. If you work and pay taxes in the US, you can continue to contribute to your IRA. If your income is not from the US, you can only contribute to an IRA if you are over the $95k exemption or is somehow taxable. This means if you make more than the annual exemption, you can shelter a bit more of your income from US taxes by funneling it into a retirement account.
Even if you can’t contribute to your IRA, your IRA growth isn’t taxable in either country. You’ll technically owe taxes on any contributions made while a Canadian tax resident and any income from those contributions.
The Canadian version of a IRA is a registered retirement savings plan (RRSP). This allows Canadian residents to save 18% of their last year’s taxable income, up to around $25k. If you don’t make the full allowable contribution, you can roll it over into a future year. You can also contribute $2k a year over your allowance. You’ll have to pay taxes on that $2k, but all future income from that overage will continue to grow tax-free. Spouses can open RRSPs for each other. The US will recognize the tax-free nature of an RRSP. Contributions to an RRSP aren’t tax deducatble for the first year that you file a tax return in Canada.
Canadians have access to tax-free savings accounts (TFSAs), but they are not included in the US-CA tax treaty. Thus, you’ll owe US taxes on any contributions to a TFSA so long as you’re a US citizen so you should probably shouldn’t pursue them.
If you have access to a US-based 401k or a Canada-based employer retirement savings plan (RSP), you can contribute to that.
The US and Canada have tax treaties for retirement accounts, but they may not automatically recognize the tax-free nature of these accounts. It’s advisable that you check with your accountant to see what you may need to do to avoid future hassles. Many people report filing a letter, along with their tax return, detailing that these accounts fall under the tax treaty the first year they file in both countries. I’d be very curious to hear about other people’s experience with this.
If you have an individual brokerage account in the US, they may take issue if you add a Canadian address. It seems easy enough to simply use the US address of a family member, but this may end up giving you trouble. When they issue a 1099 it goes to you, the federal government, and the state government. You may eventually hear from the state and have to battle it out to prove you shouldn’t owe state taxes on your investment income. You’ll want to set up a brokerage account in Canada, which will still allow you to purchase US stocks.
Provincial health coverage generally allows you to leave for up to six months without a gap in coverage, allowing you to take extended visits back to the US or anywhere abroad without worrying about losing health insurance.
Beware that if you’re injured while in the US, provincial health coverage will only pay the “table rates” that they’d pay for in-province care. Given the high healthcare costs in the US, this will likely leave you with a significant bill.
If you have supplementary insurance, it may cover you for time in the US. Your credit card may also provide travel insurance. Look into the coverage you have already to make sure you buy any necessary additional insurance — and avoid paying for duplicate coverage.
As a US citizen who lived in the US for five or more years, you’ll qualify for Medicare once you reach 65. If you’re covered by both provincial health insurance and Medicare, you have the fortune of being able to decide which country is the best to receive care. It also means that snowbirds are covered in both countries.
There are requirements to qualify for both provincial coverage and Medicare. Check to make sure you qualify — and to see what actions you need to take in order to register. You may incur monthly or annual charges for health insurance coverage.
US citizens who don’t enroll in Medicare at age 65 may incur a penalty if they fail to demonstrate they have coverage elsewhere.
Disability and life insurance coverage
The Canada Pension Plan (CPP) and Quebec Pension Plan (QPP) both provide disability coverage. You qualify if you’ve worked for 4 of the past 6 years, or 3 of the past 6 years if you’ve worked at least 25 years. If you don’t meet the requirements, the US-CA Totalization Agreement can help you qualify for benefits by giving you credit for time worked in the US.
If you qualify for Social Security Disability benefits in the US, you can continue to collect them while a resident of Canada. You can apply for disability benefits in the US after you’ve left.
Many employers offer disability benefits. Check with your HR department to see what your coverage is (if any). If you don’t have coverage or have gaps in your coverage, you can purchase private disability insurance. You may also want to purchase long-term care insurance. Be sure any insurance policies you purchase cover both the US and Canada, or any country you may move to in the future.
Power of attorney and living wills
Many people neglect to establish power of attorney, living wills, and end of life care documents until they’re terminally ill. Given how unexpected so many critical illnesses, disabilities, and deaths are, it’s best to prepare these documents long before you expect to need them.
People whose families are divided across borders — or divided by arguments — should absolutely write out their wishes in writing. You never know when something may change your life dramatically. If you don’t wish that your healthcare or financial decisions be made by an estranged parent, soon-to-be-ex, or incompetent sibling, put down your choices in writing ahead of time.
Many people have strong feelings about what sort of care they’d like to receive if there’s been a serious accident or if they are too ill to make their own health care decisions. Don’t force your family to guess — and question the choices they make for the rest of their lives.
Power of attorney and living will templates are available online. Your hospital system is typically happy to help you put this paperwork together using standard forms and will file it in your medical record. It’s best to provide these documents to your medical team, attorney, and family members.
If people can’t find the paperwork when it matters, you may as well not have done it at all.
Both Canada and the US have an estate tax, which apply to your worldwide assets.
If you die before your spouse, they can inherit your IRAs, RSP, RRSP, 401k, etc. with little hassle. If you own property as joint tenants, property will bypass probate and transfer to the surviving owner.
Retirement accounts and property left to other family members or friends will be subject to taxation. Estates that go through probate frequently take a year or more to sort out, even without anything being contested.
You’ll want to make sure your will is legal in both countries. You’ll want to ensure the same will is filed in both jurisdictions; contradictory wills across borders will be a nightmare for your family to sort out after your passing. Be sure any beneficiaries listed in your retirement and brokerage accounts match the beneficiaries listed in your will.
If you’re concerned about transferring your estate to heirs, you’ll want to look into this fully to understand your options and how your residency will impact your tax situation.