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 is an RRSP and how does it work?

An RRSP is a registered account you open at a Canadian bank, brokerage, or trust company. You contribute money, deduct the contribution from your Canadian income (reducing your tax for the year), invest the funds inside the account (stocks, bonds, GICs, mutual funds, ETFs), and pay no tax on the investment income until you withdraw. On withdrawal, the full amount is included in your income and taxed at your marginal rate. The mechanics are the same as a US traditional IRA: tax in, grow tax-free, tax out.

The contribution limit is 18% of your prior year’s earned income, up to a dollar cap set annually ($32,490 CAD for 2025). Unused contribution room carries forward indefinitely, so someone who worked in Canada for ten years and never contributed could have tens of thousands of dollars of room available. Unlike a 401(k), an RRSP is not employer-sponsored: you open it yourself, contribute directly, and choose your own investments. Employer-facilitated versions exist (group RRSPs and Defined Contribution RPPs), but the personal RRSP is the most common form.

The RRSP must be converted to a Registered Retirement Income Fund (RRIF) by the end of the year you turn 71, after which minimum annual withdrawals are required. You can also withdraw from an RRSP at any age without a penalty (unlike the US 10% early withdrawal penalty on traditional IRAs and 401(k)s before 59½), but the withdrawal is taxed as income and the contribution room is not restored.

What is the US equivalent of an RRSP?

The traditional IRA is the closest structural equivalent. Both are individual accounts (not employer-sponsored), both offer a tax deduction on contributions, both grow tax-deferred, and both tax withdrawals as ordinary income. The main differences are in the contribution limits ($7,000 USD for a traditional IRA in 2025 versus $32,490 CAD for an RRSP) and the early withdrawal penalty (10% in the US under IRC 72(t), none in Canada).

The 401(k) is the employer-sponsored equivalent. A 401(k) has higher contribution limits ($23,500 USD in 2025) and often includes employer matching, making it functionally closer to a group RRSP or a Canadian employer pension plan. The tax treatment is the same concept: deductible contributions, tax-deferred growth, taxable withdrawals.

The TFSA is not the equivalent of an RRSP. The TFSA uses after-tax dollars and provides tax-free growth and withdrawals, making it Canada’s equivalent of the Roth IRA. The RRSP and TFSA serve different roles in the Canadian retirement system, just as the traditional IRA/401(k) and Roth IRA serve different roles in the US.

The Canada-US tax treaty recognizes RRSPs as retirement arrangements and provides specific provisions for cross-border holders, including the Article XVIII(7) election that defers US taxation on the growth inside the account.

What happens to my RRSP when I leave Canada?

Nothing is forced. When you cease Canadian residence, section 128.1(4) of the Income Tax Act deems you to have sold most capital property at fair market value (the departure tax), but RRSPs are explicitly excluded. Subsection 128.1(10) lists the RRSP, the RRIF, and the TFSA as “excluded rights or interests” that are not subject to the deemed disposition. Your RRSP crosses the border intact, with the same balance, the same investments, and no Canadian tax triggered by the move itself.

You cannot contribute to the RRSP after you leave Canada (contributions require Canadian earned income, and a non-resident generally does not have that). The account stays open, the investments continue to grow, and you have three options going forward: leave it where it is, convert it to a RRIF and take periodic withdrawals, or cash the whole thing out. The withdrawal math is different for each option, and the Canadian withholding rate differs between a lump sum and periodic payments.

Your Canadian financial institution will need to know your non-resident status for withholding purposes. Some institutions restrict the investment options available to non-resident RRSP holders (for example, prohibiting new purchases of Canadian mutual funds for a US resident due to US securities regulations), but the account itself remains valid.

How are RRSP withdrawals taxed for non-residents?

Canada withholds tax at source on every RRSP payment made to a non-resident. Section 212(1)(l) of the ITA imposes a 25% withholding on amounts paid out of an RRSP to a non-resident. That 25% is your final Canadian tax on the withdrawal, with no requirement to file a Canadian return.

The treaty can reduce the rate to 15%, but only on periodic payments. Article XVIII(2) of the Canada-US tax treaty caps the source country’s tax at 15% on periodic pension payments. A lump-sum RRSP withdrawal is not periodic, so the 25% withholding stands on a full cash-out. A RRIF payment within the minimum annual amount qualifies as periodic, getting the 15% rate. The distinction is the reason most cross-border planners recommend converting to a RRIF before withdrawing: the lump sum vs periodic comparison works through the math.

There is a third option in a low-income year. Section 217 of the ITA lets a non-resident elect to file a Canadian return and pay graduated rates (plus the non-resident surtax) instead of the flat 25% withholding. If your world income is low enough that 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, and 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 minimum withdrawal	15% (with treaty)	Yes (periodic)
RRIF above-minimum withdrawal	25% on the excess	Excess is 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 (or automatic deferral), the income from any distributions, and the information reporting.

Treaty deferral. While the RRSP is untouched and growing, the US would normally tax the annual income inside the account (interest, dividends, capital gains) because the US does not automatically recognize a foreign retirement plan’s tax-deferred status. Article XVIII(7) of the Canada-US tax treaty allows you to defer that US tax, and for “eligible individuals” (as defined in the treaty protocol), the deferral is now automatic, with no election required. If you are not an eligible individual, you file the election by attaching 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. When you take money out, the gross distribution (before Canadian withholding) is included in your US income. It goes 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. Because the Canadian withholding rate (15% or 25%) is usually lower than your US marginal rate, you end up paying the difference to the US. The FTC prevents double taxation but does not eliminate all US tax on the distribution.

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 on the last day of the year, higher for filers living abroad), you also report on Form 8938. These are reporting obligations, not taxes, but the 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 primary reason is the withholding rate: 15% on periodic RRIF withdrawals (at or below the minimum) versus 25% on an RRSP lump sum. On a $300,000 account, the difference between 15% and 25% is $30,000 in Canadian withholding, and that gap is real money even after the US FTC.

The lump sum makes sense when the balance is small (where the administrative cost of maintaining a RRIF in Canada outweighs the withholding savings), 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.

One timing constraint: the RRSP must be converted to a RRIF by the end of the year you turn 71, regardless of your residency. If you are a non-resident at 71 and have not converted, the RRSP matures and the balance is paid out as a lump sum, subject to the 25% withholding. Plan the conversion before that deadline.

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

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