What Happens to Your 401(k) When You Move to Canada?

Your 401(k) does not disappear when you move to Canada. The account stays with the US custodian, the balance keeps growing, and you can take distributions whenever the plan allows it. What changes is the tax picture: Canada now taxes you as a resident on worldwide income, so a 401(k) distribution that used to be a single-country event becomes a two-country event with withholding on the US side, an income inclusion on the Canadian side, and a foreign tax credit bridging the two. You also have the option of transferring the balance into an RRSP (the Canadian equivalent) using a deduction under ITA 60(j), though that route has conditions and a deadline.

What’s the Canadian equivalent of a 401(k)?

The Registered Retirement Savings Plan (RRSP) is the closest Canadian equivalent. Both let you contribute pre-tax dollars, grow investments tax-deferred, and tax withdrawals as ordinary income. The treaty election under Article XVIII(7) lets a Canadian resident defer Canadian tax on income accruing inside a US retirement plan.

Canada does not have a “401(k)” by that name. Key differences:

• The term comes from IRC 401(k); a 401(k) is always employer-sponsored
• A personal RRSP is something you open and fund yourself; group RRSPs and DC RPPs are structurally closer to a 401(k) because they involve an employer
• The comparison section below breaks down limits, penalties, and other details

Can I keep my 401(k) after moving to Canada?

Yes, and for many people this is the simplest option. No rule requires you to cash out when you leave the US. The account stays with the US custodian, investments keep growing, and you take distributions per the plan’s rules.

The one thing you must do: make the treaty election under Article XVIII(7) on your first Canadian return. Without it, CRA can tax annual growth even though you’ve withdrawn nothing. It’s a one-time election via a letter attached to the return.

Trade-offs of leaving it in the US:

• Makes sense when you’re years from retirement and comfortable with the plan’s investment options
• The downside: managing a retirement account across two countries (US reporting, Canadian treaty election, currency exposure)

How is my 401(k) taxed when I live in Canada?

When you take a distribution as a Canadian resident, both countries want a piece. The US withholds at source, Canada includes the full gross distribution in your income, and the FTC under ITA 126(1) prevents double taxation by crediting the US tax against the Canadian liability.

How the two sides work:

• US withholding: for nonresident aliens, the default rate is 30% under IRC 871(a)(1). The treaty reduces it to 15% for periodic payments only; lump sums get 30%. US citizens are taxed at regular rates regardless (saving clause). See the treaty rate guide.
• Canadian side: gross distribution on line 11500 of the T1, converted to CAD at the date-of-receipt exchange rate. The FTC usually eliminates the US layer because Canadian marginal rates are higher.
• Under 59½ trap: the US adds a 10% early withdrawal penalty under IRC 72(t) on top of ordinary tax. Exceptions exist, but moving to Canada doesn’t waive it.

Can I transfer my 401(k) to an RRSP?

Yes, through the ITA 60(j) deduction. It is not a direct rollover. You take a distribution, include it in Canadian income, contribute the same amount to your RRSP, and claim the 60(j) deduction to offset the inclusion. Net Canadian tax: zero if you contribute the full gross amount. The deduction does not use RRSP contribution room.

Key mechanics:

• The benefit must be attributable to services rendered while you were not a Canadian resident
• Contribute to the RRSP in the year you receive the distribution or within 60 days after year-end
• The funding gap: if the US withholds 30% on $100,000, you receive $70,000. To fully shelter the transfer, contribute the gross $100,000 by funding the gap from other savings. The US withholding is recovered through the FTC, not the 60(j) deduction.
• The deep guide covers all five conditions; the 60(j) rollover guide walks through the mechanics

How does a 401(k) compare to an RRSP?

Both are tax-deferred retirement accounts: contributions reduce taxable income, investments grow tax-free, and withdrawals are taxed as ordinary income. The differences are in the details.

Side by side:

• Contribution limits: 401(k) allows up to $23,500 USD/year (2025), $7,500 catch-up for 50+, and employer matching can push the total to $70,000. RRSP caps at 18% of prior-year earned income, up to $32,490 CAD (2025), with unused room carrying forward indefinitely.
• Employer involvement: a 401(k) is always employer-sponsored. An RRSP can be opened by anyone with earned income, at any institution, with no employer required.

Early withdrawal penalties. The US imposes a 10% penalty on 401(k) withdrawals before age 59½ under IRC 72(t), with specific exceptions. Canada has no early withdrawal penalty on RRSP withdrawals. You can withdraw from your RRSP at any age; the withdrawal is simply taxed as income. The lack of a penalty makes the RRSP more flexible, though withdrawing early still costs you the tax-deferred growth.

Mandatory withdrawals. A 401(k) requires minimum distributions starting at age 73 (under SECURE 2.0). An 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 based on your age and the account balance.

Tax treaty recognition. Each country recognizes the other’s retirement accounts under the Canada-US tax treaty. The Article XVIII(7) election lets a Canadian resident defer Canadian tax on a 401(k), and the same mechanism works for a US resident holding an RRSP. The treaty also reduces withholding rates on cross-border distributions, from 30% to 15% on periodic payments.

Can I still contribute to my 401(k) from Canada?

No, in practical terms. A 401(k) requires an employer-employee relationship with the plan sponsor, and the deferral comes from US compensation. Once you leave US employment, there is no payroll to defer from. The account stays open and invested, but no new contributions go in.

If you work for a US company remotely from Canada, it’s more complex:

• Whether you can continue deferring depends on whether the compensation is US-source (generally not if work is performed in Canada), whether the plan allows it, and how the employer treats your payroll. Most US employers stop deferrals for employees abroad.
• The treaty’s cross-border contribution rules (Article XVIII(8)-(14)) apply in limited circumstances (temporary assignments, primarily), not as a general license.
• After moving, the RRSP is the account for building tax-deferred savings. Room is based on Canadian earned income and accumulates from your first year of employment.

What should I do next?

If you have a 401(k) and you are moving to Canada (or already have), the first decision is whether to leave the balance in the US or transfer it to an RRSP. Leaving it is simpler and keeps your options open. Transferring consolidates your retirement savings into one system but requires navigating the 60(j) conditions and funding the withholding gap. Either way, make the Article XVIII(7) treaty election on your first Canadian return to defer Canadian tax on the account’s growth.

The guides below cover each piece in detail:

• 401(k) and Roth IRA when moving back to Canada, the deep guide on whether your 401(k) fits the 60(j) deduction
• The ITA 60(j) rollover, step-by-step transfer mechanics
• Getting the 15% treaty rate on IRA/401(k) distributions, the withholding reduction for non-citizens
• I’m American and moving to Canada, the full tax roadmap including the RRSP treaty election
• Can I keep my US brokerage and IRA after moving to Canada?, the practical side of holding US accounts from abroad
• Does Canada have a tax treaty with the US?, how the treaty allocates taxing rights on retirement income
• Can a US citizen live in Canada?, the immigration and tax overview
• RRSP vs 401(k): how do they compare?, a side-by-side comparison for people who hold both accounts

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