It’s far from uncommon for Americans to retire abroad—the combination of exotic surroundings, lower rent and cheaper medical care can be irresistible for a retiree with wanderlust and an undernourished nest egg. But Yanks aren’t the only gray-haired migrants in North America: As Kathy Kristof reports this month for Financial Planning magazine, many Canadians are exploring the possibility of retiring in the U.S., drawn mostly by a tax code that treats them more gently than Canada’s.
Nobody is certain exactly how many Canadians live in the U.S., though an estimated one million people hold dual Canada-U.S. citizenship. Canadians of all ages have certainly shown a preference for Florida’s beaches over, say, Newfoundland’s: According to an accounting firm cited by Toronto’s Globe and Mail newspaper, Canadian buyers have been involved in as many as 30% of Florida real estate purchases in the years since the housing crash.
But the bigger draw for someone of retirement age is the way that withdrawals from a Canadian retirement account are treated when the assets are moved to the U.S. Unlike with an American citizen’s home-grown 401(k)s and IRAs, the Internal Revenue Service doesn’t tax withdrawals of principal from an imported Canadian retirement account. “If Uncle Sam didn’t give you a tax deduction for your contributions,” Kristof explains, “the U.S. government doesn’t expect you to pay tax on the principal.”