Cross-Border Retirement Withdrawals: Tax on RRSP, 401(k), IRA, and Pension When You Live in the Other Country

A retirement account that worked perfectly in the country where you built it becomes a cross-border tax problem the moment you move to the other country. An RRSP withdrawal by a US resident, a 401(k) distribution to a Canadian resident, a Canadian pension received while living in Florida: each creates a taxable event in the source country (withholding), a taxable event in the residence country (inclusion in income), and a foreign tax credit mechanism to prevent double taxation. The treaty sets the withholding rates, and the credit math determines the actual cost. Neither country makes this easy.

How is an RRSP withdrawal taxed for a US resident?

A US resident who withdraws from an RRSP faces tax in both countries. For current guidance, see IRS Retirement Plans for Small Business.

Canadian side: Canada withholds tax on RRSP withdrawals paid to non-residents under Part XIII of the ITA. The withholding rate depends on the type of withdrawal:

• Withdrawals from the RRSP before it matures: 25% for non-residents under ITA 212(1)(l), with no treaty reduction. Section 5 of the Income Tax Conventions Interpretation Act says an RRSP payment before maturity is never a “periodic pension payment,” whether you take it as one lump sum or in instalments.
• Periodic payments (RRIF payments within the periodic limit, or annuity payments from an RRSP after it matures): the treaty caps the withholding at 15% under Article XVIII(2)(a). For a RRIF, the periodic limit is the greater of twice the year’s minimum or 10% of the fund’s value at the start of the year. Payments above it are withheld at 25%.

The recipient should file Form NR301 (or ensure the financial institution has treaty information on file) to claim the 15% treaty rate on periodic payments. Without the treaty claim, the full 25% applies.

US side: The US resident includes the RRSP withdrawal in gross income on their Form 1040. The US treats RRSP accounts as foreign trusts for tax purposes, but the treaty (Article XVIII(7)) allows deferral of US tax on income accruing in the RRSP until withdrawal. For this deferral to apply, the taxpayer must have made an election (typically by filing Form 8891 in prior years, though this form was discontinued after 2014 and the election is now deemed automatic under Rev. Proc. 2014-55 for most taxpayers).

The US taxes the withdrawal as ordinary income at the taxpayer’s marginal rate. The taxpayer claims a foreign tax credit on Form 1116 for the Canadian withholding tax.

If the Canadian withholding (25% on an RRSP withdrawal, 15% on a periodic RRIF payment) is less than the US tax on the withdrawal, the taxpayer pays the difference to the US. If the Canadian tax is higher, the US tax on that income drops to zero and the unused credit can generally be carried to other years.

How is a 401(k)/IRA payout taxed for a Canadian resident?

A Canadian resident who receives a distribution from a US 401(k), traditional IRA, or other qualified retirement plan faces the mirror-image problem.

US side: The US withholds tax on retirement plan distributions to non-resident aliens. The statutory withholding rate is 30% under IRC 1441. The treaty cuts it to 15% on periodic pension payments (Article XVIII(2)(a)), but not on a lump sum: the IRS treaty rate table notes that for Canada the 15% rate doesn’t apply to a lump-sum payment, so a lump-sum distribution stays at 30%. The recipient furnishes Form W-8BEN to the plan administrator to claim the treaty rate on periodic payments.

For Roth IRA and Roth 401(k) distributions, the US treatment depends on whether the distribution is “qualified” (held for 5 years and the owner is over 59 1/2). A qualified Roth distribution is tax-free in the US (no withholding). A non-qualified Roth distribution is subject to withholding on the earnings portion.

Canadian side: Canada includes the distribution in income on the recipient’s T1 return. The CRA treats US retirement plan distributions as “pension income” for Canadian tax purposes. The full amount of the distribution (or the taxable portion, in the case of a Roth) is included in income, and the taxpayer claims a foreign tax credit under ITA 126 for the US withholding.

For 401(k) and traditional IRA distributions, the amount that was contributed on a pre-tax basis (and the earnings) is fully taxable in Canada. The basis (after-tax contributions, if any) is not taxable, but tracking the basis across the border requires the original contribution records.

Roth IRAs and Canadian tax: Canada does not have a Roth equivalent recognition in the treaty. The CRA’s position is that Roth IRA earnings that accrued while the taxpayer was a Canadian resident are taxable in Canada as they accrue (since the treaty deferral election under Article XVIII(7) and the specific Roth provisions apply to US taxation, not Canadian). However, for a Canadian resident who contributed to a Roth IRA while a US resident and then moved to Canada, there is a treaty-based argument that the earnings accrued before becoming a Canadian resident are not taxable in Canada. This is an area where professional advice is important, as the CRA’s interpretation and the treaty language do not align neatly.

How are Canadian pensions (CPP, OAS) taxed for US residents?

Canada Pension Plan (CPP) and Old Age Security (OAS) payments are social security benefits under the treaty, not periodic pension payments. Article XVIII(5) makes a social security benefit taxable only in the country where the recipient lives.

Canadian withholding: none. A US resident’s CPP and OAS are taxable only in the US, so the correct Canadian withholding is 0% once Service Canada has the US residency on file. The OAS recovery tax (“clawback”) doesn’t reach a US resident either: for someone living outside Canada, it applies only where the non-resident tax on Canadian pensions is 25% or more.

US taxation: The US resident reports the CPP and OAS on Form 1040 as if they were US Social Security benefits (Article XVIII(5)(b)), so no more than 85% of the total is included in income, under the same formula that applies to US Social Security.

Since Canada withholds nothing on CPP or OAS, there is no Canadian tax to credit on that income. A Canadian employer pension or a periodic RRIF payment is different: Canada withholds up to 15%, and the US gives a foreign tax credit for it.

How are US Social Security benefits taxed for Canadians?

Under the treaty (Article XVIII(5)), US Social Security benefits paid to a Canadian resident are taxable only in Canada. The US does not withhold on Social Security payments to Canadian residents (the treaty eliminates US taxation entirely for these payments, effective since 1996 for the current protocol).

On the Canadian return, the recipient includes only 85% of the US Social Security benefit in income (ITA 56(1)(a)(i) and the treaty). The 15% exclusion mirrors the US domestic treatment. The included amount is then taxed at the recipient’s Canadian marginal rate.

Since the US does not withhold, there is no foreign tax credit to claim. The Canadian tax is the only tax.

What about lump-sum transfers between retirement accounts?

A cross-border transfer of retirement funds (rolling a 401(k) into an RRSP, or transferring an RRSP to an IRA) is generally not possible on a tax-free basis. The two countries’ retirement systems are not integrated, and there is no mechanism for a tax-free rollover between a US qualified plan and a Canadian registered plan.

The practical options:

• Leave the account in the original country. The US 401(k) or IRA stays in the US. The RRSP stays in Canada. Withdrawals are taxed under the cross-border rules described above.
• Withdraw and contribute. The taxpayer withdraws from the old-country account (triggering tax in the source country and income inclusion in the residence country), then contributes the after-tax amount to the new-country retirement account. The contribution generates a deduction in the residence country (within contribution limits), which partially offsets the tax on the withdrawal. This is not a rollover; it is a withdrawal and a separate contribution.
• IRA-to-RRSP transfer (limited). Under ITA 60(j), a Canadian resident who receives a lump-sum payment from a US pension or retirement plan may be able to transfer it to an RRSP without using RRSP contribution room, to the extent the amount is included in Canadian income. The mechanics are specific and require that the payment qualifies as a “foreign retirement arrangement” lump-sum under the ITA. The US side still taxes the withdrawal (a lump sum paid to a non-resident takes the full 30% US withholding, since the treaty’s 15% cap covers only periodic payments), and the Canadian side gives the RRSP deduction to offset the Canadian inclusion.

The ITA 60(j) transfer is the closest thing to a cross-border rollover. It works best for lump-sum distributions from US plans (not periodic payments), and it requires that the taxpayer has not previously deducted the contributions in the US (to avoid a double deduction). The calculation is complex and depends on the taxpayer’s specific contribution history.

What forms are required?

US resident with Canadian retirement income:

• T1 (Canadian return, if filing to claim a refund of excess withholding)
• Form NR301 (to claim treaty-reduced withholding at source)
• Form 1040 (US return, reporting the Canadian retirement income)
• Form 1116 (foreign tax credit for Canadian withholding)
• Schedule B or Schedule 1 as applicable for reporting the income

Canadian resident with US retirement income:

• Form W-8BEN (filed with the US plan administrator for treaty-reduced withholding)
• Form 1040-NR (US return, if filing to claim a refund of excess withholding or if there is other US-source income)
• T1 (Canadian return, reporting the US retirement income as pension income)
• Form T2209 (federal foreign tax credit for US withholding)

Ongoing reporting:

• Canadian residents with US retirement accounts may have FBAR (FinCEN 114) and Form 8938 (FATCA) reporting obligations if the account values exceed the thresholds. These are information returns, not tax returns, but the penalties for non-filing are severe (up to $16,536 per report for FBAR, $10,000 to $50,000 for Form 8938).
• US residents with RRSP accounts previously filed Form 8891 to elect treaty deferral. Since 2015, the election is deemed made automatically under Rev. Proc. 2014-55, and Form 8891 is no longer required. However, the RRSP is still a foreign trust for US purposes, and Form 3520-A (annual information return of a foreign trust) may technically be required, though the IRS has indicated in practice that the deemed election obviates this filing for most taxpayers.

Related guides

• RRSP Lump Sum vs Periodic Withdrawals After Moving to the US
• Section 217 Election for Non-Resident RRSP Withdrawals
• RRSP for Non-Residents After Leaving Canada
• What Happens to a 401(k) When You Move to Canada
• Inheriting a US IRA or 401(k) as a Canadian
• Transferring a US Pension to an RRSP Under ITA 60(j)
• RRSP vs 401(k): Cross-Border Comparison

Related guides:

• Early Withdrawal from Retirement Accounts: Penalties, Exceptions, and SEPP Plans for Business Owners

• Canadian Tax on US Social Security Benefits: How Canada Taxes Your American Retirement Income

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.