I’m thinking about retiring in Canada for the lower healthcare costs — what are the big steps to make that happen and how will my Social Security, 401(k) and IRA work across borders?

Key steps to retiring in Canada

If you’re moving to Canada for work, you’d need to have a job offer or qualify under an immigration program. You’d also need to prove you can support yourself, such as having proof of funds.

One option for retirees is to stay in Canada temporarily. As an American, you can stay in Canada as a visitor for up to six months at a time and don’t need to apply for a visa. You can even own real estate north of the border, so long as you exit Canada every six months.

This limitation could actually make it easier to handle your retirement accounts, since they could remain in the U.S. (and you could open a U.S. dollar bank account in Canada).

You could also work toward obtaining permanent resident status, which means qualifying under an eligible program. Most Americans gain permanent residency through the Express Entry or Provincial Nominee Program (PNP), which require you to meet educational, language proficiency and skilled work experience criteria.

You may want to consider moving to Canada before you retire to take advantage of work-related visas. Or, since you have family in Canada, a family member may be able to sponsor you.

If you become a permanent resident, you can live in Canada indefinitely, but that doesn’t automatically make you a Canadian citizen. You can apply to become a citizen after living in Canada for at least three out of five years, but keep in mind it can be a lengthy, complex process.

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Understanding the cost of living in Canada

The cost of living in the U.S. is generally higher than in Canada, though it depends on where you’re moving from and where you’re moving to.

In general, though, the cost of living — including rent — is roughly 18% higher in the U.S. than in Canada, according to stats from Numbeo at the time of writing. However, local purchasing power is 35% higher in the U.S. than in Canada.

Taxes are generally higher in Canada, but citizens receive more services for those tax dollars. That includes publicly funded healthcare, which means you receive “free” care (paid for with taxes) at a doctor’s office, clinic or hospital.

While Americans can receive medical care in Canada, it’s not free unless you’re a permanent resident — in which case you may be eligible for provincial or territorial coverage. If you’re moving to Canada and not yet a permanent resident or citizen, you’ll want to have health insurance.

In fact, many Canadians have supplemental health insurance for care that isn’t covered, such as prescription drugs, vision care and dental care.

Another consideration is the cost of housing, which is an issue across North America. While the U.S. will be short 4 to 7 million homes by 2030, Canada will be short 3.5 million homes, according to the Consumer Choice Center. Canadian cities like Toronto and Vancouver also have higher housing costs than many smaller U.S. cities.

Managing your US retirement accounts across the border

If you decide to become a permanent resident or apply for citizenship in Canada, you’ll need to understand the implications for taxes, retirement accounts and Social Security. For example, Americans living abroad — including Canada — must continue filing taxes in the United States. That’s the case, even if they become a resident of another country.

However, under the United States–Canada Income Tax Treaty, both the U.S. and Canada provide a foreign income tax credit for any income tax paid in the other country, which helps citizens avoid double taxation.

While Canada taxes U.S. retirement income, U.S. Social Security is only taxed in the country of residence.

U.S. Social Security benefits paid to a resident of Canada “are taxed in Canada as if they were benefits under the Canada Pension Plan, except that 15% of the amount of the benefit is exempt from Canadian tax,” according to the Internal Revenue Service (IRS).

Your Social Security benefit can be deposited directly into a Canadian bank account, either in Canadian dollars or in U.S. dollars (if you have a U.S. dollar account).

However, if you have a pension, that income would be taxed in both the U.S. and Canada, though a foreign tax credit would be available for the U.S. portion, according to the Government of Canada.

Canada taxes distributions on U.S. retirement income, but 401(k), 403(b) and IRA plans are covered under the tax treaty. That means your funds can continue to grow tax-deferred in the U.S. until you have to take required minimum distributions (RMDs) at age 73, according to Edward Jones. Once a distribution is taken, you’ll need to claim that as income when filing your Canadian tax return.

It’s possible to roll your 401(k) into a traditional IRA and manage it from Canada, though you will need to do this with the help of a cross-border financial advisor. It’s also possible to transfer a 401(k) or traditional IRA into a Canadian Registered Retirement Savings Plan (RRSP), thanks to provisions under Canadian tax laws. But you can’t transfer a Roth IRA in the same way.

Income accruing in your Roth IRA “is generally subject to Canadian tax unless you make a one-time election under the Canada-U.S. Income Tax Treaty to defer taxation,” according to RBC Wealth Management Services. “When distributions are eventually made, they too may be exempt from Canadian tax by the Treaty (under certain conditions).”

If you decide to proceed with permanent residency, you’ll want to find a cross-border tax advisor who can advise you of the best options for managing your money and reducing the possibility of double taxation.