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 is the Canadian equivalent of a 401(k)?

The Registered Retirement Savings Plan (RRSP) is the closest Canadian equivalent. Both a 401(k) and an RRSP let you contribute pre-tax dollars (or deduct the contribution from income), let the investments grow tax-deferred inside the account, and tax the withdrawals as ordinary income when you take them out. The structural similarity is why the Canada-US tax treaty treats each country’s retirement accounts symmetrically: Article XVIII gives both countries a framework for recognizing the other’s plans, and 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. The term “401(k)” comes from section 401(k) of the US Internal Revenue Code, which is the US statute that creates the arrangement. When Canadians search “what is a 401(k) in Canada,” they are usually looking for the RRSP, though group RRSPs and Defined Contribution Registered Pension Plans (DC RPPs) are structurally closer to a US 401(k) because they involve an employer. A personal RRSP is something you open and fund yourself; a 401(k) is always employer-sponsored. The comparison section below breaks down the differences.

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

Yes, and for many people this is the simplest option. There is no rule requiring you to cash out your 401(k) when you leave the US or when you become a Canadian resident. The account stays with the US custodian, the investments continue to grow, and you can take distributions according to the plan’s rules whenever you choose to. Some plans require you to roll over to an IRA after separation from service, but the money stays in the US either way.

The one thing you need to do is make the treaty election under Article XVIII(7) on your Canadian return. Without the election, CRA can tax the annual growth inside the 401(k) even though you have not withdrawn anything. The election defers that tax until a distribution is actually made. It is a one-time election, filed with your first Canadian return (or the first return after you acquire the plan), and CRA has no prescribed form for it; a letter attached to the return is the standard method.

Leaving the money in the US makes sense when you are still years from retirement, you are comfortable with the investment options in the plan, and you do not need to consolidate accounts. The downside is that you are managing a retirement account across two countries: US reporting on the account itself, Canadian reporting of the treaty election and eventually the distribution, and currency exposure on the balance.

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

When you take a distribution from a 401(k) as a Canadian resident, both countries want a piece. The US withholds tax at source. Canada includes the full gross distribution (before US withholding) in your income. The foreign tax credit under ITA 126(1) prevents double taxation by crediting the US tax against the Canadian liability on the same income.

On the US side, the withholding rate depends on your US status and how you take the money. If you are not a US citizen or green card holder, you are a nonresident alien for US purposes, and the default withholding rate on a distribution is 30% under IRC 871(a)(1). The Canada-US tax treaty can reduce that to 15%, but only on periodic pension payments (Article XVIII(2)). A lump sum does not qualify as periodic, so the full 30% applies. If you are a US citizen, the treaty cap does not apply (the saving clause in Article XXIX(2) preserves the US right to tax its own citizens), and you file a US return reporting the distribution as ordinary income. The treaty rate guide walks through the mechanics and the W-8BEN.

On the Canadian side, the gross distribution goes on line 11500 of your T1 return, converted to Canadian dollars at the exchange rate on the date you received it. The FTC under ITA 126(1) credits the US tax paid, but the credit is limited to the Canadian tax payable on that income. Because Canadian marginal rates are generally higher than the US withholding rate, the FTC usually eliminates the US tax layer, and you end up paying roughly the Canadian rate on the distribution.

One trap: if you are under 59½, the US adds a 10% early withdrawal penalty under IRC 72(t) on top of the ordinary tax. Exceptions exist (separation from service after age 55, substantially equal periodic payments, and others), but the penalty does not go away just because you moved to Canada.

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

Yes, through the ITA 60(j) deduction. It is not a direct rollover like a 401(k)-to-IRA transfer in the US. You take a distribution from the 401(k), include it in Canadian income, contribute the same amount to your RRSP, and claim the 60(j) deduction to offset the income inclusion. The net Canadian tax on the transfer is zero if you contribute the full gross amount (before US withholding). The US withholding is a separate item that generates a foreign tax credit on your Canadian return.

Five conditions must hold for the deduction, and the most important practical ones are: the benefit must be attributable to services rendered while you were not a Canadian resident, the amount must be contributed to the RRSP in the year you receive it or within 60 days after that year ends, and the contribution cannot exceed the distribution. The 60(j) deduction does not use or require RRSP contribution room, which matters because most people who just moved to Canada have little or no room.

The catch is the funding gap. If the US withholds 30% on a $100,000 distribution, you receive $70,000. Contributing only the $70,000 that arrived means $30,000 of the distribution sits in your Canadian income with no offsetting deduction. To fully shelter the transfer, you need to contribute the gross amount ($100,000) by funding the $30,000 gap from other savings. The US withholding is recovered through the FTC, not through the 60(j) deduction.

The deep guide to the 401(k) and RRSP transfer covers the five conditions in full, including the open question of whether CRA considers a 401(k) to meet the pension-benefit limb of 60(j)(i). The 60(j) rollover guide walks through the mechanics step by step.

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

Both are tax-deferred retirement accounts designed to encourage saving for retirement. Contributions reduce your taxable income in the year you make them, investments grow tax-free inside the account, and withdrawals are taxed as ordinary income. The differences are in the details.

Contribution limits. A 401(k) allows employees to defer up to $23,500 USD per year (2025), with an additional $7,500 for those 50 and older. Employer matching contributions can push the total to $70,000. An RRSP is capped at 18% of your prior-year earned income, up to $32,490 CAD (2025). There is no employer match built into a personal RRSP, though group RRSPs and RPPs can include employer contributions. The RRSP carries forward unused contribution room indefinitely; the 401(k) does not.

Employer involvement. A 401(k) is always employer-sponsored. You cannot open one on your own. The employer sets up the plan, chooses the investment menu, and often matches a portion of your contributions. An RRSP can be opened by anyone with earned income, at any financial institution, with no employer involvement. Group RRSPs exist (where the employer facilitates payroll deductions and may contribute), but the personal RRSP is the default.

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 your US compensation. Once you leave US employment and move to Canada, there is no payroll to defer from and no employer to match. The account stays open and invested, but no new contributions go in.

If you work for a US company remotely from Canada, the situation is more complex. Whether you can continue deferring depends on whether the compensation is US-source (generally it is not if the work is performed in Canada), whether the plan allows it, and how the employer treats your employment for US payroll purposes. Most US employers stop 401(k) deferrals for employees working permanently outside the US. The treaty’s cross-border contribution rules in Article XVIII(8) through (14) apply in limited circumstances (temporary assignments, primarily), and they are not a general license to contribute to a US plan while living in Canada.

If you want to continue building tax-deferred retirement savings after moving to Canada, the RRSP is the account to use. Your RRSP contribution room is based on Canadian earned income, so it starts accumulating from your first year of Canadian employment. There is no waiting period, but the room is based on the prior year’s income, so the first year may have limited room unless you have carried-forward room from earlier years of Canadian residency.

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

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