RRSP vs. 401(k) vs. IRA: A Guide for Canadians and Americans

By Abhi Mehta, Founder of Canada Citizen Center and Immigration Writer

A detailed comparison of Canadian and U.S. retirement accounts (RRSP, 401(k), IRA) for cross-border tax planning, including rollover rules and treaty implications.

2026-09-07

In an increasingly mobile world, professionals frequently move between Canada and the United States, bringing their careers, families, and financial lives with them. A critical and often complex part of this transition is managing retirement savings. U.S. accounts like the 401(k) and Individual Retirement Arrangement (IRA) do not map perfectly onto Canada's Registered Retirement Savings Plan (RRSP), creating potential tax pitfalls and planning challenges. Understanding the rules set by the Canada Revenue Agency (CRA), the U.S. Internal Revenue Service (IRS), and the *Canada-U.S. Tax Treaty* is essential to preserving the tax-deferred status of these vital nest eggs.

Moving your retirement funds is not a simple transfer; it often involves cashing out one account, paying withholding tax, and then contributing to a new plan in your destination country, all while navigating contribution limits and foreign asset reporting rules. For a U.S. citizen moving to Canada, the IRS continues to have a claim on their worldwide income, adding another layer of complexity. As of 2026, the rules allow for continued tax deferral on growth within these plans, provided the taxpayer makes the correct elections on their annual tax filings. For example, a Canadian resident must report their 401(k) or IRA holdings on Form T1135 (Foreign Income Verification Statement) if the total cost of their specified foreign property exceeds CAD $100,000.

This guide provides a detailed, practical overview for individuals navigating the cross-border retirement landscape. It covers the mechanics of keeping your existing plan, the process for rolling it over where permitted, and the critical tax compliance steps for residents of either country with retirement savings in the other. The focus is on providing actionable information based on the governing statutes and tax treaties as they stand today, helping you make informed decisions to protect and grow your retirement savings.

Key takeaways

• Treaty Protection: The *Canada-U.S. Tax Treaty* allows for tax-deferred growth in the other country's retirement plans. You generally won't pay annual Canadian tax on the internal growth of a 401(k) or IRA, and vice-versa, as long as you file the proper elections.
• No Direct Transfers: You cannot directly transfer funds from a 401(k) or IRA into an RRSP, or vice-versa. The process involves deregistering the funds (a taxable event), transferring the cash, and contributing to the new plan, subject to local contribution limits.
• Withholding Taxes Apply: When you collapse a retirement account to move the funds, a withholding tax is levied. For a U.S. 401(k), this is typically 30%, but the tax treaty may reduce it to 15% if the withdrawal is a lump sum. This withheld amount is often recoverable as a foreign tax credit on your home country tax return.
• Reporting is Mandatory: Residents of Canada must report their U.S. retirement accounts on Form T1135 if their foreign property value exceeds CAD $100,000. U.S. citizens in Canada must continue to file U.S. tax returns and report their Canadian RRSPs, often on FinCEN Form 114 (FBAR) and IRS Form 8938.
• Contribution Limits Differ: Your ability to contribute to a new plan is based on your earned income in that country. You cannot use U.S. income to generate RRSP contribution room, nor can you use Canadian income to contribute to a 401(k) or IRA.
• Roth vs. TFSA: Roth IRAs and Roth 401(k)s, which use post-tax U.S. dollars, are not granted tax-free growth status in Canada. The CRA taxes the annual income and capital gains within them, making them generally disadvantageous for Canadian residents.

Comparing Canadian and U.S. Retirement Plans

At their core, Canadian RRSPs and U.S. 401(k)s/IRAs share a common goal: providing a tax-advantaged way to save for retirement. They allow contributions to be made on a pre-tax basis, let investments grow tax-free, and then tax withdrawals in retirement. However, their specific rules, contribution limits, and cross-border portability differ significantly.

A Registered Retirement Savings Plan (RRSP) is a personal savings plan registered with the Canadian government. Contribution room is generated based on 18% of your previous year's earned income in Canada, up to a maximum limit set annually (CAD $31,560 for the 2024 tax year). A 401(k) is an employer-sponsored plan in the U.S., while an IRA is a personal plan. Both have their own contribution limits, set by the IRS ($23,000 for a 401(k) and $7,000 for an IRA in 2024). The table below highlights their key features from the perspective of a cross-border individual.

Moving to Canada with a 401(k) or IRA

If you are moving to Canada and have a 401(k) or IRA, you have two primary options: keep the account in the U.S. or collapse it and move the cash.

Option 1: Keep Your U.S. Plan

This is the most common strategy. Article XVIII of the *Canada-U.S. Tax Treaty* allows you to continue deferring tax on the investment income earned inside your 401(k) or IRA. This means you do not need to report the annual interest, dividends, or capital gains on your Canadian tax return. To receive this benefit, you may need to file an annual election under subsection 115(2) of the Canadian *Income Tax Act*, which is a straightforward process when using tax software or an accountant.

However, you must still report the existence of the account. If the total cost base of all your "specified foreign property" exceeds CAD $100,000 at any point in the year, you must file Form T1135, Foreign Income Verification Statement. The penalties for failing to file this form are significant, starting at $25 per day up to a maximum of $2,500.

When you eventually take distributions from the plan in retirement (as a Canadian resident), the payments are fully taxable in Canada. You will also be subject to a 15% U.S. withholding tax on the withdrawal. This U.S. tax can typically be claimed as a foreign tax credit on your Canadian tax return to avoid double taxation.

U.S. Retirement Plan Participation

Source: U.S. Bureau of Labor Statistics, 2023

Option 2: Collapse Your U.S. Plan and Move the Funds

You might choose this option if your balance is small, you want to consolidate your finances in Canada, or your former employer's plan has high fees. This is a multi-step process:

1. Liquidate the Account: You instruct the U.S. plan administrator to cash out your account. This is a taxable event in the United States.
2. Withholding Tax: The administrator will withhold a portion of the funds for the IRS. This is typically a flat 30% for non-residents, but if you can prove Canadian residency (using Form W-8BEN), the treaty rate of 15% often applies to periodic payments and 30% to lump sums unless it can be considered a periodic payment.
3. Receive the Net Funds: You receive the remaining cash.
4. Contribute to an RRSP: You can contribute these funds to an RRSP, but *only if you have available RRSP contribution room*. This room is generated from your Canadian-source earned income. If you are new to Canada, you may have little to no room in your first year.
5. File Tax Returns: On your U.S. non-resident tax return (Form 1040-NR), you report the withdrawal and the tax withheld. On your Canadian tax return, you report the withdrawal as income and claim a foreign tax credit for the taxes paid to the IRS to offset the Canadian tax owing.

Moving to the U.S. with an RRSP

For Canadians moving to the United States, the situation is largely symmetrical. You can keep your RRSP in Canada and let it grow, or you can collapse it.

Option 1: Keep Your RRSP in Canada

The *Canada-U.S. Tax Treaty* again provides protection. By filing the correct election with the IRS (often on Form 8833, Treaty-Based Return Position Disclosure), you can defer U.S. tax on the RRSP's internal growth. This is a crucial step; without it, the IRS could tax you annually on the fund's earnings.

If you are a U.S. resident, green card holder, or citizen, you must also report your Canadian financial accounts. This includes filing a FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), if the aggregate value of your foreign accounts exceeds $10,000 USD at any time during the year. You may also need to file IRS Form 8938, Statement of Specified Foreign Financial Assets, depending on your filing status and account balances.

When you take distributions as a U.S. resident, Canada will apply a withholding tax (typically 15% on periodic payments under the treaty). These distributions are also taxable on your U.S. return, but you can claim a foreign tax credit for the tax paid to Canada.

Option 2: Collapse Your RRSP

If you decide to cash out your RRSP before or after moving, the financial institution holding the plan will withhold tax. The default withholding tax rate for non-residents is 25%. However, this can sometimes be reduced if the income is transferred directly to another registered plan, but this is not applicable for a move to a U.S. plan. The withdrawn amount is considered income in Canada and must be reported on a Canadian tax return. You would then receive the net amount in cash, which you could use to contribute to a U.S. 401(k) or IRA, subject to U.S. contribution limits based on your U.S. income.

This chart illustrates the growth of RRSP contribution room, which is a key factor when planning to move funds to Canada.

Maximum RRSP Contribution Room by Year

Source: Canada Revenue Agency

The Special Case of Roth IRAs and TFSAs

Roth accounts in the U.S. (Roth IRA, Roth 401(k)) and Tax-Free Savings Accounts (TFSAs) in Canada are treated differently because contributions are made with post-tax money. In exchange, qualified withdrawals are tax-free.

This tax-free status does not automatically cross the border. For a Canadian resident holding a Roth IRA, the CRA does not recognize its tax-free nature under the current treaty interpretation. This means the CRA will tax the annual investment income (interest, dividends, and capital gains) earned within the Roth account. This makes a Roth IRA a highly inefficient vehicle for a Canadian resident, as it is funded with post-tax U.S. dollars and its growth is taxed in Canada, negating its primary benefit.

Similarly, for a U.S. resident holding a Canadian TFSA, the IRS does not recognize it as a "pension fund" under the treaty. It is generally treated as a foreign grantor trust, which requires complex annual reporting (Forms 3520 and 3520-A) and results in the internal earnings being taxed annually by the IRS. Due to these complexities and tax disadvantages, most cross-border experts advise liquidating Roth IRAs and TFSAs before becoming a tax resident of the other country.

Step-by-Step: Moving 401(k) Funds to Canada

Here is a typical process for a new resident of Canada who decides to liquidate a U.S. 401(k) and move the proceeds.

Frequently asked questions

What happens to my 401(k) if I move to Canada?

If you move to Canada, you can keep your 401(k) in the United States. Under the Canada-U.S. tax treaty, the investment growth inside the plan can continue to be deferred from Canadian tax. You must report the account on Form T1135 if your foreign assets exceed CAD $100,000. When you take withdrawals as a Canadian resident, they will be taxed in Canada, with a credit for any U.S. withholding tax paid.

Can I transfer my 401(k) directly to an RRSP?

No, you cannot perform a direct institutional transfer or "rollover" from a U.S. 401(k) or IRA to a Canadian RRSP. You must first liquidate the U.S. account, which is a taxable event. After paying U.S. withholding tax, you receive the net cash, which you can then contribute to an RRSP, provided you have sufficient contribution room generated from Canadian earnings.

Is it better to keep my IRA in the U.S. or cash it out when moving to Canada?

For a Traditional IRA, it is often better to keep it in the U.S. The tax treaty protects its growth from Canadian tax, and this avoids the immediate tax hit and potential loss of contribution room from cashing out. For a Roth IRA, however, it is usually better to cash it out before moving, as Canada taxes its internal growth, defeating its tax-free purpose.

How are RRSP withdrawals taxed if I live in the U.S.?

If you are a U.S. resident, your RRSP withdrawals are subject to a 15% Canadian withholding tax on periodic payments (25% on lump-sum payments). You must also report the withdrawal as taxable income on your U.S. tax return. You can then claim a foreign tax credit on IRS Form 1116 for the 15% tax you paid to Canada to avoid being taxed twice on the same income.

Do I need to report my RRSP on a U.S. tax return?

Yes. If you are a U.S. citizen or resident alien, you have worldwide income and reporting obligations. You must report your RRSP on FinCEN Form 114 (FBAR) if the total of your foreign accounts exceeds $10,000. You may also need to file IRS Form 8938. To defer U.S. tax on the RRSP's internal growth, you should file Form 8833 to claim a position under the tax treaty.

What is Form T1135?

Form T1135, the Foreign Income Verification Statement, is a form used by the Canada Revenue Agency. Canadian residents must file it if the total cost of their "specified foreign property"—which includes U.S. 401(k)s and IRAs—exceeds CAD $100,000 at any point during the year. It is an information return, and failure to file can result in substantial penalties, even if no tax is owing.

What is the difference between an RRSP and a TFSA for a U.S. citizen in Canada?

For a U.S. citizen in Canada, an RRSP is generally a better choice than a TFSA. The IRS recognizes the RRSP as a pension plan under the tax treaty, allowing its growth to be tax-deferred (with a proper election). The IRS does not recognize the TFSA's tax-free status. It treats it as a foreign trust, requiring complex reporting and taxing its annual earnings, which makes it burdensome and tax-inefficient for U.S. persons.

Navigating cross-border retirement accounts is a complex area where professional advice is highly recommended. To see which Canadian immigration and residency pathways you might qualify for, take our two-minute eligibility quiz at /quiz.

This article is for informational purposes only and does not constitute legal advice.

Frequently asked questions

What happens to my 401(k) if I move to Canada?

If you move to Canada, you can keep your 401(k) in the United States. Under the Canada-U.S. tax treaty, the investment growth inside the plan can continue to be deferred from Canadian tax. You must report the account on Form T1135 if your foreign assets exceed CAD $100,000. When you take withdrawals as a Canadian resident, they will be taxed in Canada, with a credit for any U.S. withholding tax paid.

Can I transfer my 401(k) directly to an RRSP?

No, you cannot perform a direct institutional transfer or "rollover" from a U.S. 401(k) or IRA to a Canadian RRSP. You must first liquidate the U.S. account, which is a taxable event. After paying U.S. withholding tax, you receive the net cash, which you can then contribute to an RRSP, provided you have sufficient contribution room generated from Canadian earnings.

Is it better to keep my IRA in the U.S. or cash it out when moving to Canada?

For a Traditional IRA, it is often better to keep it in the U.S. The tax treaty protects its growth from Canadian tax, and this avoids the immediate tax hit and potential loss of contribution room from cashing out. For a Roth IRA, however, it is usually better to cash it out before moving, as Canada taxes its internal growth, defeating its tax-free purpose.

How are RRSP withdrawals taxed if I live in the U.S.?

If you are a U.S. resident, your RRSP withdrawals are subject to a 15% Canadian withholding tax on periodic payments (25% on lump-sum payments). You must also report the withdrawal as taxable income on your U.S. tax return. You can then claim a foreign tax credit on IRS Form 1116 for the 15% tax you paid to Canada to avoid being taxed twice on the same income.

Do I need to report my RRSP on a U.S. tax return?

Yes. If you are a U.S. citizen or resident alien, you have worldwide income and reporting obligations. You must report your RRSP on FinCEN Form 114 (FBAR) if the total of your foreign accounts exceeds $10,000. You may also need to file IRS Form 8938. To defer U.S. tax on the RRSP's internal growth, you should file Form 8833 to claim a position under the tax treaty.

What is Form T1135?

Form T1135, the Foreign Income Verification Statement, is a form used by the Canada Revenue Agency. Canadian residents must file it if the total cost of their "specified foreign property"—which includes U.S. 401(k)s and IRAs—exceeds CAD $100,000 at any point during the year. It is an information return, and failure to file can result in substantial penalties, even if no tax is owing.

What is the difference between an RRSP and a TFSA for a U.S. citizen in Canada?

For a U.S. citizen in Canada, an RRSP is generally a better choice than a TFSA. The IRS recognizes the RRSP as a pension plan under the tax treaty, allowing its growth to be tax-deferred (with a proper election). The IRS does not recognize the TFSA's tax-free status. It treats it as a foreign trust, requiring complex reporting and taxing its annual earnings, which makes it burdensome and tax-inefficient for U.S. persons.

Canada Citizen Center is not a law firm and does not provide legal advice.