5 Mistakes U.S. Physicians Make When Moving to Canada With Inherited IRAs

If you are a U.S. physician moving to Nova Scotia and you inherit an IRA, the wrong move can create unnecessary tax, reporting, and investment problems on both sides of the border.

What you’ll learn in this article

• Why inheriting an IRA is different from inheriting cash or a regular investment account
• How Canada generally treats inherited IRA withdrawals
• Why U.S. withholding tax and Canadian income tax can both apply
• Why inherited IRAs cannot receive new contributions or rollovers
• How physicians moving to Canada can avoid common cross-border retirement mistakes

We work with physicians just like you, navigating cross-border investment complexities. Read on to learn more about your situation. Should you prefer to reach out to us directly, you can send us a direct email by clicking the link below and our team will set up an introductory meeting with you.

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Why inherited IRAs matter for U.S. physicians moving to Canada

Moving from the United States to Canada already creates financial complexity. For physicians, that complexity is usually higher.

You may be dealing with:

• A high income before or after the move
• U.S. retirement accounts such as IRAs, Roth IRAs, and 401(k)s
• Canadian tax residency
• Provincial tax exposure in Nova Scotia
• U.S. tax filing obligations if you are a U.S. citizen or green card holder
• Family inheritances from parents or relatives still living in the United States

An inherited IRA can make this even more complicated.

Canada does not have an inheritance tax, and inheritance itself is generally not taxable income in Canada. However, income generated from inherited assets can be taxable. That distinction is especially important with an inherited IRA, because IRA withdrawals are not treated the same way as simply receiving inherited cash.

For a physician moving to Canada, the core issue is simple:

The inheritance may not be taxable when received, but withdrawals from the inherited IRA can be taxable.

That is where many people make mistakes.

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Mistake #1: Assuming an inherited IRA is treated like a normal inheritance in Canada

This is probably the easiest mistake to make.

If you inherit cash, Canada generally does not tax the inheritance itself. If you inherit a regular investment account, Canada generally looks at the future income, dividends, interest, or capital gains generated after inheritance.

But an inherited IRA is different.

A U.S. IRA is a retirement account. When a Canadian resident receives withdrawals from a U.S. IRA, Canada generally treats those withdrawals as pension income, meaning they are taxable when paid.

That creates a trap for U.S. physicians moving to Canada.

You might think:

“I inherited this account, and Canada has no inheritance tax, so this should not be taxable.”

That logic works for many inheritances, but not for IRA distributions.

The better way to think about it is:

• The fact that you inherited the IRA is not the main tax event in Canada
• The withdrawals from the inherited IRA are the tax event
• Each distribution needs to be reviewed under both U.S. and Canadian tax rules

This matters more for physicians because taxable IRA withdrawals can be stacked on top of professional income, practice income, employment income, or other investment income.

If you take a large distribution in a high-income year, the tax cost can be much higher than expected.

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Mistake #2: Taking a lump-sum withdrawal without looking at both tax systems

A lump-sum withdrawal can feel clean.

You inherit the IRA, close the account, move the money to Canada, and simplify your life.

But clean does not always mean smart.

According to the source material, U.S. IRA withdrawals are generally taxable in Canada when paid, and U.S. withholding tax may apply. Canadian residents can often claim a foreign tax credit to reduce double taxation under the Canada-U.S. tax treaty.

That sounds helpful, and it can be. But it does not mean the withdrawal is tax-free.

A large lump-sum withdrawal may create several problems:

• U.S. tax may be withheld at source
• Canada may tax the gross withdrawal as income
• The foreign tax credit may not fully eliminate the Canadian tax impact
• The withdrawal may push you into a higher Canadian tax bracket
• The timing may be especially costly if it occurs after you begin earning Canadian income

For physicians, this deserves extra attention.

A doctor moving to Nova Scotia may already have high income from clinical work, locum work, retained U.S. income, consulting, or investment assets. Adding a large inherited IRA withdrawal to that same tax year can create an avoidable tax spike.

The key issue is not whether you can take the money.

The key issue is when, how much, and from which country’s tax perspective.

Reach out today to discuss your unique situation with a cross-border financial advisor at Biscop Cross Border Investment Services.

Book A Cross-Border Consultation

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Mistake #3: Forgetting that inherited IRAs still follow U.S. retirement account rules

An inherited IRA does not stop being a U.S. retirement account just because the beneficiary moves to Canada.

The source material notes that when a Canadian inherits a U.S. IRA, the inherited IRA remains subject to U.S. retirement account rules, including required minimum distribution schedules. Withdrawals may be taxable in both countries, but treaty relief may help offset U.S. tax paid when the income is reported in Canada.

This is where cross-border planning becomes important.

A Canadian tax preparer may focus on Canadian reporting.

A U.S. custodian may focus on U.S. IRA rules.

But the person inheriting the IRA needs both sides coordinated.

Potential issues include:

• Required distribution timing
• U.S. withholding documentation
• Canadian income inclusion
• Foreign tax credit matching
• Currency conversion for Canadian tax reporting
• Whether the U.S. financial institution will continue servicing the account after Canadian residency begins

This last point can be a practical problem. Some U.S. firms are not comfortable managing accounts for Canadian residents. That can lead to pressure to liquidate or move assets before the full tax picture is understood.

For a physician in the middle of relocating, licensing, housing, and starting work in Nova Scotia, it is easy to treat the IRA as an administrative item.

It is not.

It is a cross-border retirement asset, and it needs to be handled deliberately.

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Mistake #4: Trying to add money or roll other accounts into the inherited IRA

Inherited IRAs are not regular personal IRAs.

You generally cannot treat an inherited IRA as a flexible retirement savings vehicle. The source material states that inherited IRAs cannot receive new contributions or rollovers. The account exists solely to distribute assets according to U.S. beneficiary rules.

That matters if you are a physician with multiple accounts.

For example, you may have:

• Your own IRA
• An old 401(k)
• A Roth IRA
• A taxable brokerage account
• An inherited IRA from a parent or spouse
• New Canadian accounts after moving

It may seem logical to consolidate accounts, but an inherited IRA has restrictions. You cannot simply roll your own IRA or 401(k) into an inherited IRA to simplify everything.

This also matters if you are thinking about moving assets to Canada.

An inherited IRA is not like transferring a regular investment account. Withdrawals can create tax consequences. The account has its own distribution requirements. And the investment management options may depend on whether your advisory team can work across both jurisdictions.

The planning question should not be:

“How do I combine everything?”

It should be:

“What does each account type allow, and what is the least disruptive way to manage this across Canada and the U.S.?”

That is where dual-licensed cross-border advice becomes valuable.

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Mistake #5: Ignoring the early withdrawal penalty rules and required distribution penalties

Many people assume that taking money from an IRA before age 59½ automatically creates a 10% early withdrawal penalty.

Inherited IRAs are different.

Inherited IRAs are generally not subject to the 10% early withdrawal penalty. However, there is an important exception. If a spousal beneficiary elects to treat the inherited IRA as their own account and then withdraws from the new rolled-over IRA before age 59½, the penalty may apply. Failing to take required distributions on time can also result in significant IRS penalties.

This creates two separate planning issues.

First, not every IRA withdrawal penalty rule applies the same way to inherited IRAs.

Second, avoiding the early withdrawal penalty does not mean avoiding tax.

A withdrawal can be penalty-free and still taxable.

That distinction matters.

For physicians moving to Canada, the goal is not just to avoid penalties. The goal is to manage:

• Tax timing
• Currency exposure
• Retirement income planning
• U.S. tax withholding
• Canadian income reporting
• Foreign tax credit use
• Long-term investment management

An inherited IRA can still be a useful asset, but only if the distribution strategy fits the broader cross-border plan.

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Reach out today to discuss your unique situation with a cross-border financial advisor at Biscop Cross Border Investment Services.

Book A Cross-Border Consultation

Why this is especially relevant for physicians moving to Nova Scotia

Doctors relocating from the U.S. to Nova Scotia are not always making a simple lifestyle move.

They may be moving for:

• A new medical role
• Family reasons
• Immigration or citizenship planning
• Retirement or semi-retirement
• A cross-border spouse or family situation
• A desire to establish long-term Canadian residency

At the same time, they may still have significant U.S. financial ties.

That could include U.S. retirement accounts, U.S. brokerage accounts, inherited assets, real estate, Social Security credits, or future estate exposure.

The inherited IRA is only one piece of the puzzle, but it can interact with everything else.

For example:

• A large IRA withdrawal may increase taxable income in Canada
• U.S. withholding may need to be coordinated with Canadian foreign tax credits
• A physician may need to decide whether to take distributions before or after Canadian tax residency begins
• Existing U.S. accounts may need to be reviewed before the move
• Canadian investment accounts need to be structured carefully if the physician remains a U.S. taxpayer

This is why inherited IRA planning should happen before money is moved.

Once the account is liquidated, the tax event may already be created.

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What should a U.S. physician do before moving to Canada with an inherited IRA?

Before taking action, review the account with advisors who understand both systems.

Key questions to ask:

1. What type of IRA is it?
   Traditional IRA, Roth IRA, inherited IRA, or inherited Roth IRA rules can differ.
2. Who was the original owner?
   Spouse and non-spouse beneficiary rules can differ.
3. Are distributions required?
   The inherited IRA may be subject to U.S. distribution rules.
4. How will Canada tax the withdrawals?
   U.S. IRA withdrawals are generally taxable in Canada when paid.
5. Will U.S. withholding apply?
   U.S. withholding tax may apply, and foreign tax credits may help reduce double taxation.
6. Can the current U.S. custodian continue servicing the account?
   This should be reviewed before the move, not after.
7. Should withdrawals be spread out?
   For high-income professionals, timing can materially change the tax outcome.
8. Does this affect the broader financial plan?
   The inherited IRA should be coordinated with your 401(k), personal IRA, Roth IRA, Canadian accounts, estate plan, and retirement income strategy.

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Final thought

An inherited IRA can be a meaningful financial asset, but for U.S. physicians moving to Canada, it is rarely simple.

Canada may not tax the inheritance itself, but that does not mean IRA withdrawals avoid tax. U.S. withholding may apply. Canadian income tax may apply. Foreign tax credits may help, but they need to be coordinated properly. Inherited IRAs also cannot receive new contributions or rollovers, and required distribution rules still matter.

The biggest mistake is acting before understanding the cross-border consequences.

Before cashing out, transferring, or restructuring an inherited IRA, speak with a cross-border financial advisor who understands both the Canadian and U.S. systems.

For physicians moving to Nova Scotia, the right plan can help reduce surprises, protect retirement assets, and keep more of the inheritance working for your long-term goals.

Reach out today to discuss your unique situation with a cross-border financial advisor at Biscop Cross Border Investment Services.

Book A Cross-Border Consultation

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