What happens to an RRSP when a client relocates to the US

Written by Carson Hamill CIM®, CRPC®, Associate Financial Advisor & Assistant Branch Manager & Sonya Dolguina CPA, CPA (IL)

Carson and Sonya were featured in The Globe and Mail to write an article about how, if a Canadian tax resident ceases residency and relocates to the U.S., retaining their Registered Retirement Savings Plan (RRSP) or Registered Retirement Income Fund (RRIF), a clear understanding of tax rules in both countries is required. CLICK HERE to visit The Globe and Mail website and read.

Adhering to the tax treaty between Canada and the U.S.

First, the good news: in U.S. states that adhere to the tax treaty between Canada and the U.S., as well as those without state income tax, these accounts will continue to grow and defer taxes, mirroring the Canadian system. Ceasing Canadian tax residency and moving to the U.S. should allow the RRSP to continue as a tax-deferred account from both a Canadian and U.S. federal tax perspective.

Not adhering to the tax treaty between Canada and the U.S.

But unfortunately, that stance doesn’t apply to every U.S. state. Some don’t recognize the tax treaty or impose state taxes. So, in those cases, RRSPs and RRIFs are potentially subject to taxes on dividends, interest, and capital gains earned within those accounts. This could result in double taxation as Canada would tax this same income, but in the year of withdrawal.

California is an example of a U.S. state where any RRSP or RRIF investment growth is not tax-free. The affected California residents must report their earned income from these accounts and pay state taxes on gains each year.


But there may be a workaround when dealing with U.S. states such as California that do not follow the tax treaty. A crystallization strategy recognizes the gains within the RRSP before the person establishes residency in the new state. It essentially resets the cost basis for U.S. state tax purposes. This proactive approach can prove beneficial especially if the RRSP assets show unrealized appreciation before the person becomes a resident of the given state.

Planning such scenarios before the move is a prudent opportunity, so working with a cross-border tax professional is key.

Passive Foreign Investment Company (PFIC)

Most cross-border professionals also advise U.S. residents that holding non-U.S. mutual funds or exchange-traded funds within an RRSP or RRIF can move forward without activating concerns related to passive foreign investment company (PFIC) holdings.

On the other hand, PFICs held in other types of accounts, such as non-registered accounts, may attract complex and costly tax filings and adverse federal tax implications. That said, Canadian mutual funds might place limitations on non-residents purchasing such investments. Some mutual funds may allow the holder to retain ownership of their funds if they held them prior to ceasing Canadian tax residency.

When it’s time to withdraw

As we know, when a person withdraws from their RRSPs or RRIFs in Canada, the entire amount, including the original contribution and subsequent growth, is taxable. For non-residents of Canada, lump sum withdrawals from an RRSP also incur a withholding tax of 25 per cent. Opting to keep investments within the RRSP, converting to an RRIF, and making periodic distributions can reduce the withholding tax to 15 per cent under the Canada-U.S. tax treaty. To qualify for the reduced withholding tax, annual withdrawals must adhere to certain criteria to qualify them as periodic payments.

South of the border, RRSPs and RRIFs are also taxable in the year of withdrawal, and the taxable amount will depend on certain factors such as U.S. tax status at the time of the contributions. To alleviate double taxation, federal foreign tax credits should be available on the U.S. tax return. However, keep in mind that some states, such as California, don’t allow foreign tax credits.

Cross-border taxes and remote work

The rise of remote work prompts the question of whether one can or should contribute to an RRSP if they’re working for a Canadian company while living and working in the U.S. The answer hinges on various factors, including available contribution room and the feasibility of utilizing the RRSP contribution against Canadian income, if any. If that proves impractical, contributing to U.S. retirement plans, such as a 401(k) or an individual retirement account (IRA), might be more advantageous.

Contributing to an RRSP after moving to the U.S. may still make sense in certain situations, such as if an individual will continue to have Canadian sourced income to report on a Canadian tax return as a non-resident, or to offset Canadian taxable income in the same tax year of ceasing residency, and the decision rests on individual circumstances. There is no tax-free mechanism to transfer an RRSP or RRIF to an IRA.

Relocating to the U.S. may also involve additional reporting requirements for foreign accounts, including an RRSP. For example, disclosure forms, such as Form FinCEN 114 and Form 8938, are required if the cumulative value of all foreign accounts exceed certain thresholds in a given tax year.


This article underscores the importance of careful planning and seeking professional advice when navigating the intricate intersection of Canadian and U.S. tax systems. As individuals navigate the complexities of cross-border finance, informed decisions guided by expert counsel become paramount on this international stage of financial management.

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.

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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.

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