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.

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:

• Periodic payments (annuity-like payments under a RRIF or a matured RRSP): the treaty reduces the withholding to 15% under Article XVIII(2). For periodic pension payments that qualify under Article XVIII(1), the withholding may be further reduced or eliminated (taxable only in the residence country), but the CRA’s position is that RRSP/RRIF payments are “other than periodic” unless they are part of a series of substantially equal periodic payments.
• Lump-sum withdrawals: the domestic withholding rate is 25% for non-residents (ITA 212(1)(l)), but the treaty reduces this to 15% if the recipient qualifies under Article XVIII(2).

The recipient should file Form NR301 (or ensure the financial institution has treaty information on file) to claim the 15% treaty rate. 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 (15%) is less than the US marginal rate on the withdrawal, the taxpayer pays the difference to the US. If the Canadian rate is higher (rare, since the treaty rate is only 15%), the excess becomes a foreign tax credit carryover.

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 on periodic payments is 30% under IRC 1441, reduced to 15% by the treaty (Article XVIII(2)). The rate on lump-sum distributions is also 30%, reduced to 15% by the treaty. The recipient furnishes Form W-8BEN to the plan administrator to claim the treaty rate.

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 to US residents are treated as periodic pension payments under the treaty.

Canadian withholding: The treaty rate on periodic pension payments (Article XVIII(1), as modified by the Fifth Protocol) is generally 15%, collected through Part XIII withholding. For OAS, Canada imposes a “clawback” (OAS recovery tax) on high-income recipients, but this clawback does not apply to non-residents receiving OAS. Non-residents pay only the 15% treaty withholding, not the income-tested clawback that applies to Canadian residents.

US taxation: The US resident includes the CPP and OAS in gross income on Form 1040. Under Article XVIII(5) of the treaty, CPP benefits are treated as US Social Security benefits for US tax purposes, meaning up to 85% of the CPP payment is included in income (the same inclusion formula that applies to US Social Security). OAS does not get this favorable treatment (it is fully included in US income).

The foreign tax credit for the 15% Canadian withholding offsets the US tax on the pension income. For a US retiree in a low tax bracket, the 15% Canadian withholding may exceed the US tax on the pension income, creating an excess credit.

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 (with treaty-reduced withholding), 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 ($10,000 per account per year 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

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