What Is an RRSP? Canada's Retirement Account and What Happens When You Leave

A Registered Retirement Savings Plan (RRSP) is Canada’s primary tax-deferred retirement account, created under section 146 of the Income Tax Act. Contributions are deductible from income, investments grow tax-deferred, and withdrawals are taxed as income. If you have worked in Canada and built up an RRSP, the account does not close or trigger tax when you leave the country. It stays with the Canadian financial institution, and you can leave it to grow, convert it to a RRIF for periodic withdrawals, or cash it out. Each path has different Canadian withholding rates and different US tax consequences.

What’s an RRSP and how does it work?

An RRSP is a registered account at a Canadian bank or brokerage. Contributions are deductible from income, investments grow tax-deferred, and withdrawals are taxed at your marginal rate. The mechanics match a US traditional IRA: tax in, grow tax-free, tax out. The contribution limit is 18% of prior-year earned income, up to $32,490 CAD (2025), with unused room carrying forward indefinitely.

• Unlike a 401(k), an RRSP is not employer-sponsored: you open it yourself and choose your investments. Employer-facilitated versions (group RRSPs, DC RPPs) exist, but the personal RRSP is the most common.
• The RRSP must be converted to a RRIF by the end of the year you turn 71, after which minimum annual withdrawals are required. You can withdraw at any age without a penalty (unlike the US 10% penalty before 59 1/2), but the withdrawal is taxed as income and the contribution room is not restored.

What’s the US equivalent of an RRSP?

The traditional IRA is the closest structural equivalent: individual (not employer-sponsored), tax-deductible contributions, tax-deferred growth, taxable withdrawals. The main differences are contribution limits ($7,000 USD vs $32,490 CAD) and the early withdrawal penalty (10% in the US under IRC 72(t), none in Canada). The 401(k) is the employer-sponsored equivalent.

• The TFSA is not the equivalent of an RRSP. The TFSA uses after-tax dollars and provides tax-free growth, making it Canada’s Roth IRA equivalent.
• The Canada-US treaty recognizes RRSPs as retirement arrangements and provides the Article XVIII(7) election that defers US taxation on growth inside the account.

What happens to my RRSP when I leave Canada?

Nothing is forced. The departure tax under ITA 128.1(4) deems a sale of most capital property, but RRSPs are explicitly excluded as “excluded rights or interests” under subsection 128.1(10). Your RRSP crosses the border intact, with the same balance, the same investments, and no Canadian tax triggered by the move. You cannot contribute after leaving (contributions require Canadian earned income), but you have three options: leave it, convert to a RRIF for periodic withdrawals, or cash out.

• The Canadian withholding rate differs between a lump sum (25%) and periodic RRIF payments (15% treaty rate). The withdrawal math is different for each option.
• Your financial institution will need to know your non-resident status for withholding purposes. Some restrict investment options for non-resident holders (e.g., prohibiting new purchases of Canadian mutual funds for US residents), but the account itself remains valid.

How are RRSP withdrawals taxed for non-residents?

Canada withholds 25% on every RRSP payment to a non-resident under ITA 212(1)(l). That is your final Canadian tax, with no requirement to file a Canadian return. The treaty can reduce the rate to 15% on periodic payments (Article XVIII(2)), but a lump-sum withdrawal is not periodic, so the 25% stands on a full cash-out.

• RRIF payments qualify as periodic, getting the 15% rate, while the year’s total stays within the greater of twice the minimum or 10% of the fund’s January 1 value. This is why most cross-border planners recommend converting to a RRIF before withdrawing: the lump sum vs periodic comparison works through the math.
• Section 217 of the ITA lets a non-resident elect to file a Canadian return at graduated rates in a low-income year. If graduated rates compute to less than the withholding, the CRA refunds the difference. The election has a hard deadline of June 30 of the following year; the section 217 guide prices the break-even.

Withdrawal method	Canadian withholding	Treaty rate available?
RRSP lump sum (full or partial cash-out)	25%	No (not periodic)
RRIF withdrawals up to the greater of 2x the minimum or 10% of the January 1 value	15% (with treaty)	Yes (periodic)
RRIF withdrawals past that limit	25% on the payment that crosses it and later payments that year	No (not periodic)
Section 217 election	Graduated rates (may be lower)	N/A (replaces withholding)

How do I report my RRSP on a US tax return?

The RRSP appears in three places on a US return: the treaty election, the income from distributions, and the information reporting. While the account is untouched, Article XVIII(7) of the Canada-US tax treaty defers US tax on the growth until you withdraw. For eligible individuals, the deferral is automatic; otherwise you file an election by attaching a statement to your return. When you take money out, the gross distribution goes on line 5a/5b of Form 1040, and you claim a foreign tax credit for the Canadian withholding.

• Treaty deferral. The US does not automatically recognize a foreign retirement plan’s tax-deferred status. Article XVIII(7) solves this. For eligible individuals (as defined in the treaty protocol), the deferral is automatic with no election required. If you are not eligible, you attach a statement to your US return. Either way, the income inside the RRSP is not taxed in the US until a distribution is made.
• Distributions. The gross distribution (before Canadian withholding) is included in US income on line 5a/5b of Form 1040 as a pension or annuity distribution. You claim a foreign tax credit on Form 1116 for the Canadian tax withheld. The FTC prevents double taxation but does not eliminate all US tax, because the Canadian withholding rate (15% or 25%) is usually lower than your US marginal rate.
• Information reporting. If your RRSP balance, combined with any other foreign financial accounts, exceeds $10,000 at any point during the year, you file the FBAR (FinCEN Form 114). If the balance exceeds the Form 8938 thresholds ($50,000 for US residents, higher for filers abroad), you also report on Form 8938. These are reporting obligations, not taxes, but penalties for non-filing are substantial.

Should I cash out my RRSP or convert it to a RRIF?

For most people, converting to a RRIF and drawing periodic payments is more tax-efficient than cashing out the RRSP. The withholding rate is the primary reason: 15% on periodic RRIF withdrawals (up to the greater of twice the minimum or 10% of the fund’s value) versus 25% on an RRSP lump sum. On a $300,000 account, that gap is $30,000 in Canadian withholding. The lump sum makes sense when the balance is small, when you need the cash immediately, or when a section 217 election in a low-income year brings the effective rate below 15%.

• The lump sum vs periodic guide runs the full comparison with a ten-year drawdown model.
• The RRSP must be converted to a RRIF by the end of the year you turn 71, regardless of your residency. If you have not converted by then, the RRSP matures and the balance is paid out as a lump sum at 25% withholding.

What should I do next?

If you left Canada with an RRSP, the first question is whether you have reported the account on FBAR and Form 8938 (if required). The second is whether the treaty election is in place (or whether you qualify for automatic deferral). The third is the withdrawal plan: leave it, convert to a RRIF, or cash out. Each decision depends on the account balance, your current and expected income, and how many years until you need the money.

• Should I withdraw my RRSP as a lump sum or periodic RRIF payments?, the full comparison
• Section 217 election for non-resident RRSP withdrawals, when graduated rates beat the flat 25%
• What happens to my RRSP and TFSA when I move to the US on TN?, the departure-year mechanics
• FBAR vs Form 8938: do I file both?, the reporting obligations
• What happens to your 401(k) when you move to Canada?, the reverse scenario
• TFSA vs Roth IRA comparison, how the tax-free accounts differ
• Can I transfer a US pension to my RRSP?, going the other direction
• RRSP vs 401(k): a side-by-side comparison, for people who hold or will hold both accounts
• RSP vs RRSP: same thing or different?, if your statements use different names
• Streamlined filing for retirees with Canadian pensions, if you never reported your RRIF or CPP income on a US return and need to catch up
• RRIF conversion and minimum withdrawals, the mechanics of converting to a RRIF and the 15% treaty rate on periodic withdrawals

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