RRSP and RRIF on death: what a US-person beneficiary needs to know

A Canadian RRSP or RRIF that was tax-deferred for decades becomes fully taxable when the holder dies. Canada triggers a deemed disposition that includes the plan’s entire value in the deceased’s terminal return. If the beneficiary is a US person (citizen, green card holder, or US resident), the US also taxes the distribution as ordinary income, and the plan’s value may land in the deceased’s US gross estate. The treaty election that deferred US tax on the plan’s growth during the holder’s lifetime doesn’t carry over to protect the death distribution. Both countries collect, and the coordination between the Canadian terminal return, Part XIII withholding, and the US income and estate tax is where most families lose money they didn’t have to lose.

What happens to an RRSP when the holder dies?

The full fair market value of the RRSP at the date of death is included in the deceased’s income for the year of death under ITA 146(8.8). Canada treats the deceased as having received the entire balance as income immediately before death. There’s no capital gains rate, no inclusion rate discount. It’s all ordinary income, taxed at the deceased’s marginal rate on the terminal return.

For a $400,000 RRSP, that’s $400,000 added to whatever other income the deceased earned in their final year. In most provinces, the top combined marginal rate on that income will be above 50%, so the tax bill on the RRSP alone can easily exceed $180,000. The estate pays this tax, not the heir. Canada doesn’t have an inheritance tax in the traditional sense, but the terminal return can produce a bill that feels like one to the family.

The one relief that eliminates this hit entirely is the spousal rollover. If the RRSP names the surviving spouse (or common-law partner) as beneficiary, the plan transfers to the spouse’s own RRSP or RRIF without triggering the income inclusion. The tax is deferred until the surviving spouse eventually withdraws or dies. A financially dependent child or grandchild can also receive a partial deferral, but the rules are narrower than most people expect.

If there’s no designated beneficiary at all, the RRSP pays into the estate, the full value hits the terminal return, and the estate pays the tax before distributing what’s left.

How is a RRIF treated differently on death?

The mechanics are nearly identical. ITA 146.3(6) includes the fair market value of the RRIF in the deceased’s income at death, just as 146(8.8) does for an RRSP. The same spousal rollover and dependent-child exceptions apply.

The real difference is practical, not structural. Because a RRIF requires minimum annual withdrawals after age 71 (or after conversion from an RRSP), the balance at death may be smaller than a comparable RRSP that was never converted. The second difference is that a RRIF allows a successor-annuitant designation, which lets the surviving spouse continue receiving payments from the same RRIF without collapsing it. An RRSP doesn’t offer this option. For cross-border families, the successor-annuitant designation on a RRIF is usually the cleanest path because it avoids a lump-sum distribution event that both countries might tax.

Can the RRSP or RRIF roll to a spouse?

Yes, and it’s the single most effective tool for deferring the tax hit. If the surviving spouse or common-law partner is the designated beneficiary, the plan’s value is excluded from the deceased’s terminal return under ITA 146(8.1) for RRSPs or ITA 146.3(6.11) for RRIFs.

The rollover works automatically when the spouse is named as beneficiary or successor annuitant. If the RRSP or RRIF pays into the estate instead (because there’s no designated beneficiary), the rollover can still happen, but only if the executor and the surviving spouse jointly elect within the time limit. This gets missed more often than you’d expect: the estate may have already filed the terminal return including the full RRSP value before anyone realizes the election was available.

When both spouses are Canadian residents, the rollover defers everything. When the surviving spouse is a US person, the Canadian rollover still works (the RRSP or RRIF transfers to the spouse’s plan without Canadian tax), but the US side needs attention. The surviving spouse must have the Article XVIII(7) treaty election in place on their own US return. If the surviving spouse hasn’t been making that election (or hasn’t been filing US returns at all), the deferred RRSP growth could be currently taxable in the US even though Canada is still deferring it. The RRSP and TFSA guide for people moving to the US covers the election mechanics.

What’s a successor annuitant vs a beneficiary?

A successor annuitant continues the RRIF in their own name after the holder dies. A beneficiary receives the proceeds as a payout. The distinction controls whether the plan continues or collapses, and it’s only available for RRIFs, not RRSPs.

When a spouse is named as successor annuitant, the RRIF doesn’t end. The financial institution simply changes the name on the account, and the minimum payments continue (recalculated for the surviving spouse’s age). There’s no lump-sum distribution, no income inclusion on the deceased’s terminal return, and no single large payment to report on the surviving spouse’s US return.

When a spouse is named as beneficiary instead, the RRIF collapses. The full value is paid out to the spouse, and the rollover into the spouse’s own RRSP or RRIF must happen within the time limit. Canada still excludes the amount from the deceased’s terminal return (the rollover works either way), but a lump-sum payment has been made. The US may view that lump sum as a distribution event even though Canada treats it as a tax-free transfer.

For cross-border families, the successor-annuitant designation is almost always cleaner. It avoids the lump-sum distribution, avoids the rollover mechanics, and keeps the RRIF intact for ongoing minimum withdrawals that are simpler to report on the US return each year. If you’re choosing between the two and a cross-border angle exists, pick successor annuitant.

Can a dependent child receive it tax-deferred?

Yes, but only if the child or grandchild was financially dependent on the deceased at the time of death. The rules sit in ITA 146(1) (definition of “refund of premiums”) and ITA 60(l). The threshold for “financially dependent” is tighter than people assume.

CRA considers a child financially dependent if the child’s income in the year before the holder’s death was below the basic personal amount (roughly $16,000 for 2026). A child with income above that threshold needs to demonstrate dependency through other evidence, which is a facts-and-circumstances test the CRA can challenge.

If the child qualifies and is under 18, the RRSP proceeds can purchase a term-certain annuity payable to age 18. The income inclusion shifts from the deceased’s terminal return to the child’s returns over the annuity’s term, taxed at the child’s lower rate. If the child has a physical or mental disability (qualifying for the disability tax credit), the proceeds can instead be rolled into the child’s own RDSP or used to purchase a life annuity.

When the financially dependent child is a US person, the annuity payments are taxable on the child’s US return as ordinary income each year. The US doesn’t have a matching deferral for this particular arrangement. The child will owe US tax on each annuity payment, offset only to the extent that a foreign tax credit covers the Canadian tax on the same payment.

How does the US tax an inherited RRSP or RRIF?

The US treats a distribution from a Canadian RRSP or RRIF to a US-person beneficiary as ordinary income, taxable in full in the year received. There’s no step-up in basis, no preferential rate, and no exemption for inherited retirement plan proceeds under the Internal Revenue Code.

This applies regardless of whether the holder was a US person. If a Canadian parent dies and the RRSP pays out to a US-citizen child, the child reports the full distribution as ordinary income on their Form 1040. If a US-citizen parent dies and the RRSP pays out to a US-citizen child, same result. The US taxes the beneficiary on receipt.

The beneficiary can claim a foreign tax credit on Form 1116 for any Canadian tax withheld on the distribution (Part XIII withholding for a non-resident beneficiary). But Part XIII withholding is the beneficiary’s own Canadian tax. The Canadian income tax paid by the deceased’s estate on the terminal return is a different matter: that was the estate’s tax liability, paid by a different taxpayer. The US foreign tax credit rules generally don’t let one person credit tax paid by another. This mismatch is the core reason that direct beneficiary designations to US-person children produce such harsh combined tax rates.

Does the treaty election help on death?

No. Article XVIII(7) of the Canada-US tax treaty allows a US person to elect to defer US tax on income accruing in a Canadian retirement plan, matching the Canadian deferral. During the holder’s lifetime, this election prevents the US from taxing the RRSP’s internal growth year by year.

On death, the plan stops being a deferral vehicle and becomes a distribution. Canada includes the full value in the deceased’s terminal return. The US treats the payout to the beneficiary as ordinary income. The treaty election was about deferring tax on undistributed income. Once the income is distributed (whether to the estate or directly to the beneficiary), there’s nothing left to defer.

People sometimes assume the treaty provides an exemption for death distributions, similar to how Article XVIII caps withholding on periodic pension payments at 15%. It doesn’t. The 15% cap applies to periodic pension payments to non-residents during the annuitant’s lifetime or from a successor annuitant’s ongoing RRIF. A lump-sum death distribution isn’t a periodic pension payment. Both countries tax it in full, coordinated only by the foreign tax credit. For more on how the treaty works during the holder’s lifetime, see the treaty overview.

Is the RRSP included in the US estate?

Yes, if the deceased was a US person. Under IRC 2031 and IRC 2033, the gross estate includes the value of all property in which the decedent had an interest at death. An RRSP or RRIF is property the decedent owned, and its full fair market value is includible.

This creates a potential double hit for US-person decedents: the RRSP value is subject to US estate tax (if the estate exceeds the $15 million exemption, made permanent for 2026 by the One Big Beautiful Bill Act), and the distribution to the beneficiary is subject to US income tax as ordinary income. IRC 691(c) provides a partial offset: the beneficiary can deduct the federal estate tax attributable to the RRSP distribution as income in respect of a decedent (IRD). But the deduction is available only if estate tax was actually paid, meaning the estate exceeded the exemption.

For US-citizen decedents with estates below $15 million, the estate tax isn’t the problem. The income tax on the distribution is the real cost, and there’s no estate tax deduction to offset it because no estate tax was paid.

If the deceased was not a US person (a Canadian resident who was never a US citizen or green card holder), the RRSP is generally not subject to US estate tax unless the plan holds US-situs assets. An RRSP that holds only Canadian-listed securities typically falls outside the US estate tax net for non-US decedents. The cross-border estate planning guide covers the broader estate tax interaction.

What about Part XIII withholding?

When an RRSP or RRIF distributes to a non-resident of Canada, Part XIII withholding under ITA 212(1)(l) can apply. The default rate is 25%, reduced to 15% under the treaty for payments that qualify as periodic pension income.

On death, whether Part XIII applies and at what rate depends on who receives the money and how the payment is structured. When the surviving spouse is a non-resident successor annuitant and continues the RRIF, the ongoing minimum payments are periodic and typically qualify for the 15% treaty rate. A lump-sum collapse of the plan to a non-resident beneficiary is not periodic, so if Part XIII applies, the 25% default rate is the starting point.

For a non-resident beneficiary who isn’t the spouse or a financially dependent child (in other words, a typical adult child living in the US), the interaction between Part XIII and the terminal-return inclusion under 146(8.8) is a technical question that depends on whether the payment constitutes income to the beneficiary under Canadian domestic law. The treatment can vary, and the financial institution’s withholding practice may not match the technical analysis. This is a point where professional advice before the distribution is released can prevent either under-withholding (which creates a CRA assessment with interest) or over-withholding (which ties up cash until a refund is processed).

For a US-person beneficiary, whatever Part XIII is withheld is creditable on the US return via Form 1116. The credit offsets the US income tax on the same distribution, dollar for dollar, up to the US tax on that income. For more detail on Part XIII mechanics, see the Part XIII withholding guide.

What happened to Form 8891?

Form 8891 used to be the IRS form for reporting RRSP and RRIF interests and making the Article XVIII(7) treaty election. The IRS made it obsolete as of December 31, 2014, through Rev. Proc. 2014-55. The treaty election is now automatic for eligible individuals, and the Form 3520/3520-A requirement for these plans was removed at the same time.

What wasn’t removed is Form 8938 and the FBAR. Rev. Proc. 2014-55 says so explicitly: it does not affect reporting obligations under section 6038D (Form 8938) or 31 U.S.C. 5314 (FBAR). A US person who inherits an RRSP or RRIF, or who holds one as a surviving spouse after a rollover, still reports the account on Form 8938 (if the reporting threshold is met) and on the FBAR (if the aggregate foreign account balance exceeds $10,000 at any point during the year).

The historical context matters because older estate plans sometimes reference Form 8891 in their instructions to executors. If a will or trust document says “file Form 8891 for the RRSP,” the executor should ignore that specific instruction and focus on the current requirements: Form 8938, FBAR, and proper reporting of the distribution on Form 1040. For the full history, see Do I still file Form 8891?

Why is naming a US child as beneficiary a trap?

When a Canadian parent names their US-citizen child as the direct RRSP or RRIF beneficiary, the child receives the full distribution and owes US income tax on it. Canada also taxes the full value on the deceased’s terminal return. The foreign tax credit coordination breaks down because the Canadian tax was paid by the deceased’s estate, not by the child.

The result is that the child may owe close to the full US tax rate on the distribution with limited foreign tax credit offset, on top of the Canadian tax the estate already paid. The combined tax across both countries can consume most of the RRSP’s value.

Routing the RRSP through the estate (or a testamentary trust) instead of a direct beneficiary designation gives the executor control over timing and structure. It also creates a cleaner path for coordinating the Canadian terminal-return tax with the US income tax owed by the beneficiary. The trade-off is that the RRSP value goes through probate (triggering provincial probate fees), but in most provinces the fee is 1.5% or less, a fraction of the tax savings from better coordination. For the broader estate planning picture, see the cross-border estate planning guide and the post-mortem pipeline guide.

What does the executor need to file?

The executor’s filing obligations span both countries and multiple forms. Missing any of them creates penalties that compound the tax cost.

Canada:

• Terminal T1 return for the deceased, reporting the RRSP or RRIF value under ITA 146(8.8) or 146.3(6)
• T3 Trust return if the estate earns income before distribution
• NR4 slip for distributions to non-resident beneficiaries (reporting Part XIII withholding)
• Clearance certificate request (IC82-6R12) before distributing estate assets to non-resident beneficiaries, to protect the executor from personal liability for unpaid tax

United States (if the deceased was a US person):

• Final Form 1040 for the deceased
• Form 706 (Estate Tax Return) if the gross estate exceeds the filing threshold
• Form 8938 and FBAR for the deceased’s foreign accounts in the year of death

United States (for the US-person beneficiary):

• Form 1040 reporting the distribution as ordinary income
• Form 1116 for the foreign tax credit (Part XIII withholding)
• Form 8938 and FBAR if the beneficiary now holds a foreign account (such as a rolled-over RRIF)

The executor should request a CRA clearance certificate under ITA 159 before making any distribution to a non-resident beneficiary. Without it, the executor is personally liable for any Canadian tax the estate should have paid. The CRA won’t issue the certificate until all returns are filed and all tax is paid or secured. For the full picture on what the estate owes after a death, see the deceased parent CRA/IRS debt guide.

What should you do before someone dies?

The planning window closes at death. Once the RRSP or RRIF holder passes, the beneficiary designation on file with the financial institution controls who gets the money and how the tax falls. Changing it after death isn’t an option.

If you’re a Canadian with US-person children, review your RRSP and RRIF beneficiary designations now. Consider whether the spousal rollover, the estate route, or a testamentary trust produces a better after-tax outcome for your family than a direct designation to a US-person child. Run the numbers with both countries’ tax rates before you decide.

If you’re a US person who holds a Canadian RRSP or RRIF (from years working in Canada before moving south), confirm that your Article XVIII(7) treaty election is in place, your Form 8938 and FBAR are current, and your beneficiary designations account for the US tax the beneficiary will owe. The RRSP and TFSA guide covers the living-holder side of this.

For families already dealing with a death, the priority is coordination: get the Canadian terminal return filed correctly, confirm the Part XIII withholding rate before the distribution is released, and make sure the US-person beneficiary’s return claims every available foreign tax credit. One advisor handling both sides prevents the cascading errors that turn a manageable tax bill into a disaster.

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