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 take money out of a traditional IRA or 401(k), pay US income tax on the amount (because the original contributions were pre-tax), and put it into a Roth IRA. Inside the Roth, the money grows tax-free and qualified withdrawals are tax-free.

If you convert while you are a US resident and not yet a Canadian resident, only the US taxes the conversion. Canada has no claim because you are not a Canadian taxpayer yet. The US tax is a one-time cost, and from that point forward, the Roth holds after-tax money.

After you become a Canadian resident, the Roth is a foreign retirement account. Without the treaty election, Canada would tax the annual growth. With the Article XVIII(7) election, you elect to defer Canadian taxation on the Roth income, and qualified withdrawals may be tax-free in both countries (the US because it is a qualified Roth distribution, Canada because the treaty election deferred taxation and the withdrawal of previously taxed contributions and conversions is not income).

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. The distribution is income. Canada taxes it.

The US also taxes it (the conversion is a taxable event regardless of where you live).

You now have the same income taxed by both countries. The FTC mechanism handles some of this: you claim a credit on your US return for the Canadian tax paid, or on your Canadian return for the US tax paid. But the credit is limited by IRC 904(a) on the US side and ITA 126 on the Canadian side, and depending on your total income and the size of the conversion, the credit 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 to a Roth through an in-plan conversion if the 401(k) plan allows it). Not all 401(k) plans permit in-plan Roth conversions, and most people find it simpler to roll the 401(k) to a traditional IRA and then convert from there.

If you have both pre-tax and after-tax (non-deductible) contributions in your traditional IRA, the pro-rata rule under IRC 72 applies to the conversion. You cannot cherry-pick the after-tax dollars for conversion; the conversion is treated as coming proportionally from pre-tax and after-tax amounts across all your traditional IRAs. If 90% of your aggregate traditional IRA balance is pre-tax, then 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 (not the growth). If you withdraw the converted amount within five years and you are under 59 1/2, the 10% early withdrawal penalty under IRC 72(t) applies to the taxable portion, even though you already paid income tax on the conversion.

This matters for the timing of the move. If you convert in 2026 and move to Canada in 2027, the five-year clock runs through 2030. Withdrawals of the converted amount before 2031 would trigger the penalty if you are under 59 1/2. After 59 1/2 or after the five-year period (whichever is later), the penalty does not apply.

The five-year rule is a US rule. Canada does not have a corresponding holding period for the Roth under the treaty election.

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.