Should I Do a Roth Conversion Before I Move to Canada?

The idea is sound: pay US tax on the conversion now, while you are still a US resident in a potentially lower bracket, and then withdraw tax-free from the Roth in Canada under the treaty election. But the execution has details that can turn the strategy from tax-efficient to double-taxed. The conversion must happen while you are still a US resident (or at least before you become a Canadian resident). If you convert after becoming a Canadian resident, Canada may tax the conversion amount as income, and you get the worst of both worlds: US tax on the conversion and Canadian tax on the same amount, with an FTC that may not fully offset.

Why convert before moving?

A Roth conversion is a taxable event in the US: you move money from a traditional IRA or 401(k) into a Roth, pay US income tax on the amount, and from that point the Roth holds after-tax money that grows tax-free. If you convert while still a US-only tax resident, only the US taxes the conversion. Canada has no claim because you are not a Canadian taxpayer yet.

• After you become a Canadian resident, the Roth is a foreign retirement account. Without the Article XVIII(7) election, Canada would tax the annual growth. With the election, Canadian taxation is deferred, and qualified withdrawals may be tax-free in both countries.

What goes wrong if I convert after moving?

If you convert after becoming a Canadian tax resident, Canada sees the conversion as a distribution from a foreign pension plan and taxes it. The US also taxes it (the conversion is taxable regardless of where you live). The FTC mechanism handles some of the overlap, but the credit is limited by IRC 904(a) on the US side and ITA 126 on the Canadian side, and may not fully absorb the double tax.

• The pre-move conversion avoids this entirely by ensuring only one country has jurisdiction when the taxable event occurs.

How much should I convert?

The conversion is taxed as ordinary income in the US, stacked on top of your other income for the year. The optimal amount depends on your marginal bracket and how much room you have before jumping to the next bracket.

For 2026, the US federal brackets for a single filer (post-TCJA permanent rates under the One Big Beautiful Bill Act):

Bracket	Rate
$0 - $11,925	10%
$11,925 - $48,475	12%
$48,475 - $103,350	22%
$103,350 - $197,300	24%
$197,300 - $250,525	32%
$250,525 - $626,350	35%
Over $626,350	37%

If your other income puts you at $80,000 and you want to stay in the 22% bracket, you have roughly $23,350 of room before you cross into 24%. A conversion of $23,000 would be taxed entirely at 22%.

Some people convert more aggressively, accepting the 24% or even 32% rate, on the theory that Canadian tax rates on the same income in the future would be higher. The comparison is between the US rate now and the combined Canadian federal-provincial rate later. If the Canadian rate on IRA withdrawals would be 40% or more (common in Ontario, BC, and Quebec at moderate income levels), paying 24% or 32% now looks efficient.

The 3.8% NIIT does not apply to Roth conversions (the conversion itself is not net investment income under IRC 1411). State taxes may apply if you convert while a resident of a state with income tax.

Do I convert the traditional IRA, the 401(k), or both?

The 401(k) must be rolled over to a traditional IRA first (or directly converted via an in-plan Roth conversion if the plan allows it). Most people find it simpler to roll to a traditional IRA and then convert. If you have both pre-tax and after-tax (non-deductible) contributions, the pro-rata rule under IRC 72 applies: you cannot cherry-pick after-tax dollars.

• The conversion is treated as coming proportionally from pre-tax and after-tax amounts across all your traditional IRAs. If 90% of the aggregate balance is pre-tax, 90% of any conversion is taxable.

What about the five-year rule?

Roth conversions are subject to a five-year holding period for penalty-free withdrawals of the converted amount. If you withdraw within five years and are under 59 1/2, the 10% early withdrawal penalty under IRC 72(t) applies. Convert in 2026 and move in 2027, and the clock runs through 2030. Canada has no corresponding holding period under the treaty election.

• After 59 1/2 or after the five-year period (whichever is later), the penalty does not apply. This matters for the timing of the move relative to when you expect to start withdrawals.

What if I have a Roth already?

If you already have a Roth IRA funded entirely by contributions made while you were a US resident, the same treaty election applies. You make the Article XVIII(7) election when you become a Canadian resident, and the Roth continues to grow tax-free. No conversion needed; the Roth is already funded with after-tax dollars.

The Roth IRA in Canada guide covers the treaty mechanics and the open questions about whether the CRA fully respects the Roth exemption for growth and withdrawals.

What should I do next?

If you are moving to Canada within the next 12 months and you have a traditional IRA or 401(k), model the conversion. Calculate how much room you have in your current US bracket, compare the US rate now against the expected Canadian rate later, and decide how much to convert before the move. Make sure the conversion happens before you become a Canadian tax resident. After the move, make the Article XVIII(7) election on your first US return as a Canadian resident.

• Does a Roth IRA stay tax-free in Canada?, the treaty mechanics for the Roth after you move
• What happens to my 401(k) and Roth IRA when I move back to Canada?, the distribution and rollover path for the traditional IRA
• Form 1116: why isn’t my foreign tax credit dollar for dollar?, because the credit limitation is why a post-move conversion double-taxes
• I’m American and moving to Canada for the first time, the broader first-move roadmap

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.