Canadian Expats’ RRSP Withdrawal and US Taxes
For Americans living in Canada, understanding RRSPs is crucial for financial planning. In this guide, we’re going to run through what you need to know to manage your Canadian retirement savings efficiently.
Intro to Registered Retirement Savings Plans (RRSPs)
A Registered Retirement Savings Plan (RRSP) is a retirement savings account sponsored by the Canadian Revenue Agency. In many ways, RRSPs are similar to an American 401(k).
RRSPs are tax-deferred, meaning that your investment will grow tax-free until you’re ready to withdraw. Any income you earn in the RRSP is also exempt from tax as long as the funds remain in the plan.
Contributions can be made to an RRSP by the account owner or their spouse/common-law partner. You can continue to make contributions until the end of the year when you turn 71. The same is true for a spouse or common-law partner contributing to the same plan. Best of all, these contributions can be deducted from your Canadian tax return.
RRSPs are available for both employees and self-employed workers.
RRSP Withdrawal Tax
Once you are ready to make a withdrawal from your RRSP, your payments will be taxed by the Canadian government. The rate for this tax will depend on your residency status and the amount you are withdrawing.
RRSP Withdrawal Tax for Residents
In the table below, you can see the tax on RRSP withdrawals for residents of all Canadian provinces except Quebec. (All amounts are given in Canadian dollars.)
| Withdrawal Amount | Tax Rate (Except in Quebec) |
| $0 – $5,000 | 10% |
| $5,001 – $15,000 | 20% |
| $15,001 + | 30% |
If you are a resident of Quebec, the withdrawal tax is considerably lower. You can see the rates for Quebec below.
| Withdrawal Amount | Tax Rate in Quebec |
| $0 – $5,000 | 5% |
| $5,001 – $15,000 | 10% |
| $15,001 + | 20% |
RRSP Withdrawal Tax for Non-Residents
Non-residents of Canada can also make contributions to an RRSP. When making a withdrawal, non-residents are taxed at a flat rate of 25%. If you convert your RRSP into a Registered Retirement Income Fund (RRIF), you can withdraw your funds as periodic pension payments. This will lower the non-resident withdrawal tax to just 15% per the US-Canada tax treaty.
US Tax Treatment of RRSPs
The US-Canada tax treaty allows US citizens to defer taxation on their RRSP account. In the past, account owners had to elect for tax deferment by filing IRS Form 8891. However, this requirement has been removed. Now, all RRSP contributions are automatically tax-deferred under US tax code. Eligible individuals will be treated as having made the election in the first year in which they would have been entitled to make the election under the treaty—i.e., retroactive relief.
That doesn’t mean your RRSP is tax-free, though. When you withdraw from your RRSP account, you will have to report the income on your US tax return. This income is technically subject to taxation, but you can use the Foreign Tax Credit to shield your pension from double taxation. (Though RRSP withdrawals are not excluded using the Foreign Earned Income Exclusion.)
Note that RRSP contributions may not be eligible for tax deferment on your state taxes (if you are subject to state taxation). Some states may implicitly adhere to the US-Canada tax treaty, but this is no guarantee. Every state has its own laws governing taxation. For example, California does not recognize any tax treaties the federal government entered into with other countries.
RRSPs and FBAR Reporting
American citizens with at least $10,000 stored in one or more foreign financial accounts are required to file a Foreign Bank Account Report (FBAR). The name of this report is a bit misleading, as just not only do foreign bank accounts need to be reported, but other financial accounts need to be reported as well. This includes investment accounts and retirement accounts such as RRSP’s.
Filing an FBAR does not result in owing any additional taxes or fees to the IRS. And reporting any accounts that don’t technically need to be reported will not result in any penalties. However, not reporting accounts when required could result in penalties starting at about $12,500. The advice to follow is that if you are not sure whether or not to include something on an FBAR, include it.
RRSPs may also be reportable on a FATCA report if the total value of your foreign financial assets exceeds certain thresholds.
Converting an RRSP to a Registered Retirement Income Fund (RRIF)
In the year you turn 71, you are required to convert your Registered Retirement Savings Plan (RRSP) into a Registered Retirement Income Fund (RRIF) or another retirement income option. However, you have the flexibility to make this conversion at any time before that age.
RRIFs are similar to RRSPs in several respects—but there are some key differences. Once your RRSP is converted to an RRIF, you cannot make any further contributions, and you must make a minimum mandatory withdrawal every year.
The minimum mandatory withdrawal amount is calculated at the beginning of each year based on your age and the market value of the assets in the account. (You can withdraw more than the minimum annual amount from your RRIF, and you can make as many withdrawals as you choose.)
RRIF payments are considered taxable income in the year they are withdrawn and are taxed at your current tax rate. The tax rate for RRIF withdrawals is the same as an RRSP. For Canadian non-residents, withholding rates are 25% for lump-sum payments and 15% for periodic pension payments.
US Tax Treatment of RRIFs
The US tax treatment for RRIFs is identical to RRSPs. You must report all RRIF withdrawals on a US tax return.
Tax-Free Savings Account (TFSA) & US Taxation
A possible alternative to a RRSP is a Tax-Free Savings Account (TFSA). Like an RRSP, a TFSA is a retirement savings account. However, unlike the RRSP, TFSA contributions are taxed. The money is then stored as after-tax dollars.
As of 2023, Canadian residents aged 18 and older can contribute up to $6,500 annually to a TFSA. These contributions can be held as cash, mutual funds, GICs, and certain stocks and bonds. If you do not reach the maximum contribution in a given year, you can carry the excess forward to another year. For example, if you only contribute $6,000 in one year, you could carry the remaining $500 forward to the next year.
While any gains earned in the TFSA are tax-free, unlike RRSP contributions, they are not tax deductible for income tax purposes.
US Tax Treatment of TFSAs
The IRS considers Canadian mutual funds held in TFSAs to be investments in a Passive Foreign Investment Company (PFIC). These funds must be reported on IRS Form 8621. The TFSA may also be a grantor foreign trust from the perspective of the US, requiring you to report them on IRS Forms 3520 and 3520A.
TFSA funds are also reportable on an FBAR and FATCA report.
We recommend that US citizens do not hold TFSAs, as the reporting costs of the account usually outweigh the benefits. Across the board, RRSPs are a better choice for a retirement savings account.
Learn More About Your Canadian RRSP Today
If you still have questions about your RRSP contributions and withdrawals—whether you are a resident or non-resident of Canada—we have the answers. At Greenback Expat Tax Services, we give Americans around the world the support they need to optimize their financial strategies. Contact us, and one of our customer champions will be happy to help in any way they can.
