Moving to the US? Let's Talk About Your RRSP
Moving south doesn't mean cashing out your RRSP. Thanks to the Canada–U.S. tax treaty it can keep growing tax-deferred — but a handful of states tax it anyway, most institutions won't hold it for a U.S. resident, and crystallizing before you leave can protect you from double taxation.
By Andrea Thompson
Founder · CFP, CRPC (US), CCS
So, you're excited about your move to the US! But what do you do about your Registered Retirement Savings Plan (RRSP)? Let's break down what you need to know.
The good news: tax-deferred growth
Thanks to the US–Canada tax treaty and revenue procedure, in many US states your RRSP can continue to grow tax-deferred, just like it does in Canada. This means your money can keep working for you without immediate tax implications. You do not need to take any action to apply this.
The not-so-good news: state taxes
Unfortunately, not all US states recognize the Canadian tax treaty. Some states may tax the growth within your RRSP, which could lead to double taxation.
These include:
- Alabama
- Arkansas
- California
- Connecticut
- Hawaii
- Kansas
- Kentucky
- Maryland
- Mississippi
- Montana
- New Jersey
- North Dakota
- Pennsylvania
If you're moving to a state that doesn't recognize the tax treaty, consider a strategy called crystallization. This involves realizing any capital gains within your RRSP before you become a US resident. By doing so, you can establish a new tax basis for your RRSP, potentially reducing your future tax liability in the US.
How do you do this? Sell the existing investments inside your RRSP, and repurchase into your chosen portfolio right before you go to the US.
If you might move between states, consider crystallizing regardless.
Where can I keep my RRSP?
Unfortunately, a lot of banks and brokerages do not allow you to keep your RRSP at their institution if you become a US resident. If they do, they might restrict your ability to move or trade funds within the RRSP while you're gone, or they may force you into no-risk-bearing investments (like GICs) to prevent principal erosion and downside risk.
Fortunately, some institutions allow US residents to hold an RRSP. Advisors who hold securities licenses in both the US and Canada, and who reside and practice based out of Canada, should be able to hold your RRSP and manage it actively — as if you were still sitting on this side of the border.
Different advisors will have investment minimums to abide by; however, consider reaching out to advisors at Raymond James, Cardinal Point, and Wellington Altus, to name a few.
Can I keep contributing to my RRSP?
As a US resident — and assuming you are not actively earning income and are not filing a Canadian tax return — then no, you don't continue to contribute to the RRSP.* You would look to establish a US-based retirement plan, such as an employer-sponsored 401(k) or an individual IRA.
If you're working remotely for a Canadian company while living in the US, you might still be able to contribute to your RRSP. However, it's important to understand the rules and consider the potential tax implications. Contributions made to the RRSP are not tax deductible on your US return.
*There are caveats to this — seek advice specific to your situation.
Withdrawing your RRSP
When you're ready to withdraw from your RRSP, there are a few things to keep in mind:
- Canadian taxes: You'll owe Canadian taxes on the entire withdrawal amount, including both your contributions and investment growth.
- Canadian withholding tax: As a non-resident of Canada, you'll be subject to a 25% withholding tax on lump-sum withdrawals made from your RRSP. If you make periodic distributions — like generating consistent RRIF income at retirement — your withholding tax can be reduced to 15% under the US–Canada tax treaty.
- US taxes: You'll also owe US taxes on the taxable portion of your withdrawal. The specific tax implications will depend on your US tax filing status and other factors.
Foreign tax credits on any withholding taxes paid to Canada will apply to your US return, which should eliminate double taxation on your RRSP or RRIF withdrawals.
Additional tax reporting obligations
Depending on the value of your RRSP and other foreign assets, you may be required to file Form 8938 (filed with the IRS) and the FBAR (FinCEN Form 114, filed directly with the Financial Crimes Enforcement Network, a separate department). Check with your tax professional to see what applies to you.
The importance of professional advice
The rules surrounding cross-border taxes and retirement planning can be complex. It's crucial to consult with a qualified tax professional to ensure you're making informed decisions that align with your specific financial goals. They can help you understand the tax implications of your RRSP in the US and recommend strategies to minimize your tax burden.
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