Are you in Cash Paralysis? You’re not alone, as a cross border (U.S. citizen) living in Canada

A frequent issue I observe among individuals who have relocated to Canada, particularly in the past five years, is something I refer to as cash paralysis. It's very common for newcomers to have cash spread across various accounts on both sides of the border. This includes bank accounts in the U.S. and Canada, cash within RRSPs, or even IRAs—left idle because of the fear of making an incorrect decision.

And the fear is real. Many clients worry you’ll accidentally trigger an issue or penalty with the IRS or CRA. You’ve been told what not to do:

• “Avoid PFICs at all costs.”

• “Don’t invest in a TFSA.”

• “You can’t invest like everyone else.”
  

You hear numerous warnings but receive little advice on what you can do. The outcome? Complete inaction. Your money remains untouched because you're overwhelmed, confused, and afraid of making a mistake. Our aim is to ensure your hard-earned dollars are all working for you - and as effectively as possible! 

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Step 1: Deciding Where the Existing Cash Should Live

When we begin collaborating with clients, our initial focus is on how to allocate the existing cash in their bank accounts. Before discussing future savings, we address the funds that are currently available.

This process starts by identifying your goals and determining how to prioritize them. Next, we examine which types of accounts are best suited for these goals, considering the factors outlined below:

• Your tax bracket and that of your spouse (if applicable)

• When will you need this money for a future goal

• Whether your move to Canada is permanent or temporary

• What short-term obligations are coming up

• Whether you have an emergency fund in place

• Your cross border accountant’s recommendations and filing fees for PFICs, and other accounts that cause complexity for U.S. tax filers such as 529s, TFSAs, RESPs. 
  

These factors affect not only which accounts you should utilize, but also on which side of the border some of your funds should be kept. There isn't a universal solution. The real answer is: it depends on your unique situation!

Step 2: Creating a Strategy for Ongoing Monthly Cash Flow

After we've arranged the current cash, we focus on the future. How should you handle your surplus monthly cash flow?

We assist you in determining the portion of your monthly savings to allocate for each goal and the appropriate account(s) to use for achieving these goals. Should you contribute to a taxable account, an RRSP, or a U.S. retirement plan? Which currency should you choose for saving and investing?

The issue of currency can be particularly challenging. Earning income in Canadian dollars makes it less than ideal to convert to USD for regular saving and investing to avoid PFICs. Likewise, earning income from U.S. sources while residing and covering expenses in Canada can also be daunting. In such cases, there is often a mismatch in withholding taxes, where the U.S. company does not withhold enough taxes from your payroll, potentially leading to a tax bill owed to the CRA in April. Without proper planning, this can be a significant surprise to your finances! 

Step 3: Determining How to Invest Across Accounts

Lastly, we explore investment strategies for your accounts, considering the complexities of cross-border issues. This involves grasping:

• Your investment experience

• Your comfort with risk

• When you’ll need the money

• Is one spouse a Canadian tax-filer only?

• Canadian and U.S. marginal tax rates
  

All of these elements are crucial, particularly when it comes to cross-border tax filings. These complexities are a significant reason why clients remain in cash for extended periods.

We also explore various options for managing your accounts. Some individuals prefer a cross-border advisor, others like to manage their investment accounts themselves, some use a robo-advisor, and many opt for a hybrid approach. Recently, we found a Canadian robo-advisor capable of managing taxable accounts for U.S. tax filers with accurate IRS tax reporting — a game changer for many of our clients.

Helping Clients Move From Paralysis to Confidence

Ultimately, each client’s situation is distinct. Overcoming cash paralysis requires more than a one-size-fits-all solution—it demands clarity, education, and a strategy customized to your individual needs, objectives, and tax circumstances.

We are here to navigate you through the available options, assist you in understanding what can be achieved, and create a plan you can confidently implement. The objective remains consistent: to activate that idle cash and make it work for you!