IRA and Roth IRA Contributions for Americans Living in Canada
Americans living in Canada can still contribute to IRAs and Roth IRAs, but only if they have the right kind of income and have not excluded it using the Foreign Earned Income Exclusion (FEIE). This is where most Americans in Canada get tripped up: the FEIE excludes earned income from US tax, which is the point, but income excluded under the FEIE does not count as “compensation” for IRA contribution purposes. If you exclude all of your Canadian employment income using Form 2555, you have zero compensation for IRA purposes, and you cannot contribute. The fix is to use the Foreign Tax Credit (FTC) instead of the FEIE, which preserves the IRA contribution eligibility while still eliminating the double tax.
To contribute to a traditional IRA or Roth IRA, you need “compensation” (generally earned income: wages, salary, self-employment income). Income excluded under the FEIE (Form 2555) does not count as compensation for IRA purposes. If you claim the FEIE and exclude all of your earned income, you cannot contribute to any IRA. The solution is to use the FTC (Form 1116) instead of the FEIE, which offsets the US tax on your Canadian income without reducing your IRA-eligible compensation. For most Americans in Canada, the FTC produces the same or lower US tax liability as the FEIE while preserving IRA eligibility. The contribution limits for 2025 are $7,000 ($8,000 if age 50+), subject to income phase-outs for Roth IRA and for deductible traditional IRA contributions when covered by an employer plan.
Why does the FEIE kill IRA contributions?
The FEIE under IRC 911 allows you to exclude up to $130,000 (2025) of foreign earned income from US gross income. The exclusion is powerful, but it has a side effect: excluded income is not included in your gross income, which means it is not “compensation” under IRC 219(f)(1) for traditional IRA purposes or “modified adjusted gross income” for Roth IRA purposes.
If you earn $100,000 CAD working in Canada and exclude all of it on Form 2555, your US gross income from that employment is zero. Zero compensation means zero IRA contribution room.
This is not a bug. The FEIE was designed to take income out of the US tax system entirely. IRAs are a US tax incentive for retirement savings, and the incentive requires taxable compensation. If the income is excluded, the incentive does not apply.
How does the FTC preserve eligibility?
The Foreign Tax Credit under IRC 901 works differently. Instead of excluding the income, the FTC includes the income in US gross income and then credits the Canadian tax paid against the US tax liability. The income remains in your gross income, which means it counts as compensation for IRA purposes.
Example: you earn $100,000 CAD ($74,074 USD at 1.35) working in Ontario. Canadian tax: approximately $25,000 CAD. US tax on the same income (at US rates): approximately $12,000 USD. The FTC credits the $25,000 CAD ($18,519 USD) against the $12,000 US liability, eliminating the US tax and generating excess FTC credits that carry forward for up to 10 years. Your compensation for IRA purposes: $74,074 USD. You can contribute up to $7,000 ($8,000 if 50+).
For most Americans in Canada, the FTC produces the same economic result as the FEIE (zero US tax, because Canadian rates are higher than US rates) while preserving IRA eligibility. The FTC also generates excess credits that can offset future US tax (on RRSP withdrawals, investment income, or income after returning to the US), which the FEIE does not.
Can I switch from FEIE to FTC?
Yes, but with a catch. If you revoke the FEIE election, you cannot re-elect it for five years without IRS consent (IRC 911(e)(2)). For Americans who plan to stay in Canada long-term, this is usually not a problem, because the FTC is the better strategy for Canada regardless of IRA contributions (Canadian tax rates exceed US rates at most income levels, generating excess credits).
The decision is a one-time strategic call. If you are already using the FEIE and want to switch:
- Stop claiming Form 2555 on your next return.
- File Form 1116 for the FTC instead.
- Accept the five-year lockout on re-electing the FEIE.
- Begin contributing to your IRA in the year you switch.
If you have never claimed the FEIE (you have always used the FTC, or you have never filed), you can start contributing immediately as long as you have compensation.
What are the IRA contribution limits?
For 2025:
| Account | Contribution limit | Age 50+ catch-up | Income phase-out |
|---|---|---|---|
| Traditional IRA (deductible, no employer plan) | $7,000 | $8,000 | No phase-out |
| Traditional IRA (deductible, covered by employer plan) | $7,000 | $8,000 | $79,000-$89,000 (single); $126,000-$146,000 (MFJ) |
| Roth IRA | $7,000 | $8,000 | $150,000-$165,000 (single); $236,000-$246,000 (MFJ) |
“Covered by an employer plan” means you participate in a Canadian employer pension plan, group RRSP, or DPSP. If your Canadian employer offers any of these and you participate, you are “covered by an employer plan” for the traditional IRA deduction phase-out. This does not affect Roth IRA eligibility (Roth uses income phase-outs only).
Modified AGI for Roth. For the Roth IRA phase-out, modified AGI includes your Canadian employment income (because you are using the FTC, not the FEIE, so the income is in your AGI). If your total AGI exceeds the Roth phase-out, you cannot contribute directly to a Roth IRA. The backdoor Roth (contributing to a non-deductible traditional IRA and converting) may be an option, but the pro-rata rule under IRC 408(d)(2) applies if you have other traditional IRA balances.
What about a spousal IRA?
If you are married and your spouse has no compensation (or low compensation), you can contribute to a spousal IRA on their behalf, as long as you file jointly (IRC 219(c)). The spousal IRA contribution uses your compensation, not your spouse’s. The same $7,000/$8,000 limits apply.
For cross-border couples where one spouse works and the other does not (common after a move), the spousal IRA doubles the household’s retirement savings capacity.
Filing jointly requires either that both spouses are US persons, or that the non-US spouse makes the 6013(g) election to be treated as a US resident. The 6013(g) election subjects the non-US spouse’s worldwide income to US tax, which may or may not be beneficial depending on their income and the FTC position.
Does an RRSP contribution affect IRA eligibility?
No. Contributing to an RRSP does not reduce your IRA contribution room or affect your IRA eligibility. The two systems are independent: the RRSP is a Canadian plan under ITA 146, and the IRA is a US plan under IRC 408. You can contribute to both in the same year.
However, RRSP contributions are not deductible on your US return (the treaty election under Article XVIII(7) only defers tax on RRSP income; it does not allow a US deduction for contributions). So the IRA deduction (traditional) or tax-free growth (Roth) adds a US tax benefit that the RRSP contribution does not provide directly.
What should I do next?
If you are an American in Canada and want to contribute to an IRA, check whether you are claiming the FEIE (Form 2555) or the FTC (Form 1116). If you are on the FEIE, model the switch to FTC and confirm the US tax outcome is the same or better. If you are already on the FTC, confirm you have compensation and contribute.
- FEIE vs FTC for Americans in Canada, the full comparison and why FTC wins for Canada
- Foreign tax credit carryforward, what happens to excess credits
- RRSP contributions for US citizens, the RRSP side of the same decision
- Filing jointly with a non-resident spouse, the election that enables spousal IRA
- Roth IRA in Canada, how the treaty protects Roth growth
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Yarik Yarosh, CPA. "IRA and Roth IRA Contributions for Americans Living in Canada." Blue Cloud CPA, August 30, 2026. https://bluecloudcpa.com/guides/ira-roth-ira-contributions-american-living-in-canada
This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.