Retiring to Canada From the US: The Tax Picture for Social Security, IRAs, Medicare, and the Estate

The retirement move north is the mirror of the snowbird corridor and is far less written about, because it runs against the usual flow: an American with US-built retirement assets becoming a Canadian resident, taxed by Canada on worldwide income, still filing US returns as a citizen, and living under a treaty that sorts the pieces. Social Security: paid to a Canadian resident, it is taxable only in Canada — the US does not tax it (the US citizen reports it and excludes it under the treaty position on the 1040), and Canada includes 85% of the benefit in income (15% exempt), taxed at Canadian rates; the claiming decision runs on the timing guide's analysis with the Canadian inclusion rule and the currency conversion of a lifetime USD stream in view. IRAs and 401(k)s: the plans stay in the US (the RRSP-and-401(k) guide covers why collapsing is rarely optimal, and the 60(j) guide covers the transfer that usually isn't worth it); their growth is deferred in Canada under the treaty's pension provisions; distributions are taxed by the US as the citizen's pension income at graduated rates on the 1040 (no 30% withholding regime for a citizen, though the plan may withhold at default rates) and by Canada as pension income at Canadian rates with a foreign tax credit for the US tax — the effective rate on withdrawals is the Canadian bracket; required minimum distributions apply as they would anywhere; and the plans are reported on the T1135 as specified foreign property. Roth IRAs: kept, elected under the treaty with the first Canadian return, never contributed to again — the tax-free-accounts guide's protocol — and withdrawn tax-free in both countries. Medicare: Medicare does not cover care received in Canada (with narrow exceptions), so the retiree's Canadian coverage is the provincial health plan, available after the province's waiting period (up to three months in some provinces) on establishing residency; the Medicare Part B enrollment decision — keep paying premiums for coverage that is unusable in Canada but avoids the late-enrollment penalty if the retiree returns to the US, or drop it and accept the penalty on any future re-enrollment — is a genuine decision that the provincial-coverage guide frames and that turns on the likelihood of a return; Part A, premium-free for most, is simply kept. Other US retirement income: pensions from US employers are taxed by both countries (US as the citizen's income; Canada as pension income with a credit); annuities follow the same pattern; and US investment accounts held in Canada run the Canadian resident's ordinary rules (dividends and interest as foreign income with credits for US withholding — though as a US citizen the retiree's US tax on this income is graduated rather than treaty-withheld, and the credit computation follows the citizen's actual US tax) plus the T1135. Canadian accounts after arrival: the retiree may open Canadian accounts and, with Canadian earned income (rare in retirement), contribute to an RRSP; the TFSA is the account to avoid (the tax-free-accounts guide); Canadian mutual funds are PFICs; and the retiree's US filing obligations continue in full — the 1040 with worldwide income, the foreign tax credit for Canadian tax, FBAR and Form 8938 for the new Canadian accounts, and the streamlined-adjacent question of whether every year since arrival has carried the right forms. The arrival-year decisions: the residency start date (the newcomer guides — provincial coverage, the arrival cost basis rules, the part-year returns in both countries); the treaty elections (the Roth election; the departure-basis election is the Canadian's, not the American's, but the arrival step-up analysis for assets held on arrival matters for the eventual Canadian gain computation); the state residency break (the US retiree leaving a high-tax state establishes non-residency for state purposes — the state-residency guide — with the federal law barring states from taxing nonresidents' retirement income closing the door the California guide describes); and the Medicare decision. The estate questions: the US will drafted for US probate may or may not work for Canadian assets and Canadian residency (the two-wills guide); the US citizen resident in Canada remains subject to US estate tax on worldwide assets (with the exemption at the current federal level) and to Canada's deemed disposition at death on worldwide assets — two regimes on one estate, coordinated by the treaty's estate provisions with credits for tax on the same assets; the IRA's beneficiary designations pass under US rules while Canada taxes the deemed disposition of the plan at death (or the rollover to a surviving spouse under the treaty and Canadian rules); and the retiree's non-US-citizen Canadian spouse, if any, raises the marital deduction limitation the QDOT guide covers. The overall shape: a retiree with Social Security, a traditional IRA, a Roth, and a US brokerage account retiring to Canada pays Canadian rates on most of it (the traditional IRA and the brokerage income), nothing on the Roth, Canadian tax on 85% of Social Security, files two returns forever, and needs an estate plan that two countries will respect — a manageable architecture once each piece is placed, and an expensive one when the pieces are placed by default.

Key takeaways

• Social Security: taxed only in Canada for a Canadian resident, 85% included; excluded on the 1040 under the treaty position — a USD stream converted for life, with the timing decision run against Canadian inclusion.
• IRAs and 401(k)s: kept in the US, growth deferred in Canada, distributions taxed by both with a Canadian credit for US tax — effective rate is the Canadian bracket; RMDs apply; T1135 reporting.
• Roth IRAs: elected with the first Canadian return, never contributed to again, tax-free in both countries — the account that works best after the move.
• Medicare: useless in Canada; provincial coverage after the waiting period; the Part B keep-or-drop decision turns on the likelihood of returning to the US.
• Arrival-year decisions: residency start date, the Roth election, the state residency break (with federal protection of nonresidents' retirement income), and continued full US filing with FBAR and 8938 for the new Canadian accounts.
• The estate runs on two regimes: US estate tax on worldwide assets as a citizen, Canada's deemed disposition at death, treaty credits between them, US beneficiary designations, and the two-wills question — a plan drafted for one country needs redrafting for two.

The retire-to-Canada checklist

Pre-move: state residency break planned; Roth conversions completed (the conversion guide); Medicare Part B decision made; the US estate plan reviewed by cross-border counsel. Arrival: residency date fixed; provincial coverage applied for; Canadian accounts opened with the TFSA skipped and PFICs avoided; arrival values documented for Canadian cost base. First Canadian return: the Roth election letter; the T1135 for the US accounts; Social Security at 85%; IRA distributions as pension income with credits. First US return as a Canadian resident: worldwide income, Social Security excluded under the treaty, foreign tax credits for Canadian tax, FBAR and 8938 for the Canadian accounts. Annually thereafter: two returns, one plan, and a review at each life event.

Worked example

A retired couple from Arizona, both US citizens, move to Victoria: US$2,800 a month in combined Social Security, a US$900,000 traditional IRA, a US$200,000 Roth, and a US$400,000 brokerage account; a US will and trust package drafted in Phoenix. Pre-move: Arizona non-residency established on departure (a clean break, with federal law protecting their IRA withdrawals from Arizona tax regardless); a Roth conversion of US$120,000 executed in their final Arizona year at the 22% bracket; Medicare Part B kept for two years while they test the move, then dropped. Arrival: BC residency on arrival, MSP coverage after the waiting period (private travel insurance bridging it). First Canadian return: the Roth election letter covering the full US$320,000; the T1135 listing the IRA and brokerage account; Social Security at 85% inclusion; IRA withdrawals (their RMDs are still years away, but they draw US$60,000 a year) as pension income with a credit for the US tax on the same withdrawals; brokerage dividends and interest as foreign income with credits. First US return: worldwide income, Social Security excluded, foreign tax credits for BC tax absorbing most of the US liability, FBAR and 8938 for their new Canadian chequing and investment accounts (held in US-listed securities to avoid PFICs). Estate: their Phoenix trust package is reviewed by cross-border counsel — the revocable trust's Canadian treatment is analyzed, a Canadian will is added for their Victoria home, and the IRA beneficiary designations are confirmed to work under both countries' rules with the treaty's credits mapped. Effective tax on their retirement income: BC rates on the IRA draws and brokerage income, nothing on the Roth, and Canadian tax on 85% of the Social Security — higher than Arizona, as expected, and fully understood before the truck left Phoenix.

Official sources

"You become a resident of Canada for income tax purposes when you have enough residential ties in Canada. For most newcomers, this starts the first day you live in Canada." — Canada Revenue Agency, Newcomers to Canada, https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/individuals-leaving-entering-canada-non-residents/newcomers-canada-immigrants.html

"If you are a U.S. citizen or resident alien, the rules for filing income, estate, and gift tax returns and paying estimated tax are generally the same whether you are in the United States or abroad." — Internal Revenue Service, U.S. citizens and resident aliens abroad, https://www.irs.gov/individuals/international-taxpayers/us-citizens-and-resident-aliens-abroad

Practitioner note

The American retiring to Canada carries a one-country architecture into a two-country system, and the work is placement: each retirement piece — Social Security, the traditional IRA, the Roth, Medicare, the estate plan — has a specific treatment under the treaty, and the pre-move decisions (state break, Roth conversion, Part B) are the ones that can't be redone. Our retire-north checklist runs pre-move, arrival, first returns, and estate review in sequence, and the couples who follow it pay Canadian rates they expected on income they planned, which is the whole goal.

See also: For the retire-in-Canada-or-the-US comparison, account by account, see the retire-in-Canada-or-the-US comparison, account by account; and browse every cross-border tax topic guide, organized by situation.

Next step

Fairlight prepares the retire-to-Canada engagement — pre-move state, Roth, and Medicare decisions, arrival-year residency and account setup, the first U.S. and Canadian returns with the treaty elections and information returns, and the cross-border estate plan review. See cross-border pricing or book a call.