California Residents: Your Canadian retirement savings accounts DO NOT Grow Tax Free

Written by Carson Hamill CIM®, CRPC®, Associate Financial Advisor and Assistant Branch Manager & Dean Moro, BComm, CIM®, Associate Financial Advisor

If you reside in California and you have a Canadian retirement savings account like an RRSP or RRIF, you may expect that it can grow tax-free. Unfortunately, this is not the case. As a resident of California, you will have to report earned income on your Canadian retirement accounts and pay tax on the gains annually.

In this blog, we’ll explain why the rules are different in California, and how working with a dual-licensed cross border investment advisor can reduce the taxes you pay on your Canadian retirement savings accounts.

Key issues to consider:

Why are Canadian retirement accounts taxed in the state of California?

Normally registered retirement savings accounts like RRSP & RRIF accounts grow tax-free, that’s the luxury of these accounts. And the Canada-US tax treaty provides a deferral for RRSP and similar retirement accounts until the time of withdrawal. Unfortunately, California does not abide by the federal tax treaties, and California residents who hold Canadian tax-deferred accounts are required to pay tax on the income and gains in the year income is earned.

In addition, when a taxpayer receives a distribution from their retirement savings account, such as an annual RRIF minimum distribution, the amount of the contribution and the previously taxed earnings is deemed a non-taxable return of capital for California tax purposes. The withdrawal will be taxable federally, which means an adjustment will be required state-side to avoid double-taxation. The withholding tax is not eligible for the foreign tax credit for California state tax purposes. Again, this is thanks to the state of California not recognizing the federal tax treaty.

Investment strategies for California residents with Canadian retirement savings accounts

First off, it’s important to recognize most Canadian financial advisors would not be aware of these rules. That is why it important that clients living and/or working in the United States, and especially the state of California, work with an experienced cross-border financial advisor. The best strategy for an individual who resides in the state of California with a Canadian retirement savings account is to treat the account as if it is a taxable investment account. As such, the tax consequences of each investment need to be carefully considered.

From a portfolio management perspective, Canadian residents, and residents of most U.S. states, do not have to be concerned about the types of securities in their Canadian retirement accounts because they are tax-sheltered. However, a California resident with a Canadian retirement account would want to be more vigilant and incorporate investment securities that minimize or reduce taxable distributions inside the account.

And similar to a non-registered taxable investment account, they would want to utilize tax-loss selling when the opportunity presents itself, which can then be used to offset capital gains. If a security in the account has a significant unrealized capital gain, it could be advantageous to spread the sale over several years to reduce the annual tax obligation, as opposed to selling the entire position at once and triggering a large tax bill for the client.

Lastly, working with a dual-licensed cross border investment advisor will allow you to consolidate your investments on both sides of the border to reduce management fees and continue to manage your portfolios for the changing market conditions. Working in conjunction with your US tax professional, tax compliance for all jurisdictions can ensured while maximizing the tax efficiency of the individual accounts.

Can your Advisor work with a resident of California?

Licensing in the investment industry is based on residency of the client. Often when a Canadian moves to the United States, they will find their Canadian investment advisor is not licensed to work with U.S. residents. Their Canadian retirement savings accounts can become dormant and restricted to sells-only. As such, they can no longer be managed for changing market conditions or changes to the risk profile of the account holder. And for residents of California, a dormant RRSP or RRIF can no longer be managed for tax efficiency.

The solution is to work with an experienced cross-border investment advisor who is licensed to work with residents of the United States. They can continue to manage the portfolio and work to minimize the earned income for California residents.

To learn more about the benefits of working with an experienced dual-licensed investment advisor click here.


Unlike most U.S. states, California residents must include all earned income and capital gains from their Canadian retirement savings accounts in their taxable income each year. Complying with California state’s tax reporting obligations, California residents who hold a Canadian RRSP, RRIF or LIRA face specific tax-planning challenges. Working with a cross-border investment advisor provides an opportunity to actively manage the portfolio to reduce the taxable income generated and time larger capital gains.

Next Steps:

If you are planning a move across borders and need assistance with your investments, estate planning, and portfolio management, please call or email us at Snowbirds Wealth Management, as we specialize in cross-border financial planning and wealth management. We work closely with experienced cross-border lawyers and accountants to ensure you have a team behind you.

About Snowbirds Wealth Management

Gerry Scott is a Portfolio Manager and founder of Snowbirds Wealth Management, an advisory firm focussed on the cross-border market. Together with Dean Moro and Carson Hamill, Associate Financial Advisors with Snowbirds Wealth Management, they provide investment solutions for Americans living in Canada, and Canadians residing in the United States. Licensed in both Canada and the US, they provide tailored investment solutions to minimize the tax burden when moving assets across borders.To schedule an introductory call, please click here.

Statistics and factual data and other information are from sources RJLU believes to be reliable but their accuracy cannot be guaranteed. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities nor is it meant to replace legal, accounting, taxation or other professional advice. We are not tax advisors and we recommend that clients seek independent advice from a professional advisor on tax-related matters. The information is furnished on the basis and understanding that RJLU is to be under no liability whatsoever in respect thereof.

Raymond James (USA) Ltd. advisors may only conduct business with residents of the states and/or jurisdictions in which they are properly registered. Investors outside the United States are subject to securities and tax regulations within their applicable jurisdictions that are not addressed on this site. Raymond James (USA) Ltd. is a member of FINRA/SIPC.