A registered retirement savings plan (RRSP) is a Canadian savings account that allows Canadians to save for retirement. The RRSP account is registered with the Canadian government. Canadians may keep their registered retirement savings plan (RRSP) intact when they move to the United States and let the income grow tax-deferred for Canadian tax purposes.
Canadian citizens who live and work in the United States may contribute to an RRSP if they have room to do so. For 2023, the RRSP contribution limit is 18% of the earned income reported on the tax return in the previous year, up to a maximum of $30,780. That limit increases to $31,560 in 2024.
Keep in mind that if you are a resident of Canada who works in the U.S., you may contribute to a 401(k) plan or open an individual retirement account (IRA) in the United States.
Key Takeaways
- A registered retirement savings plan allows savings for retirement in an account registered with the Canadian government.
- Canadian citizens who live and work in the United States may contribute to an RRSP as long as they keep within the contribution threshold.
- Canadians may keep their RRSP intact when they move to the United States and let the income grow tax-deferred for Canadian tax purposes.
- RRSPs are similar to 401(k) plans offered in the United States.
What Is an RRSP?
An RRSP is a retirement savings and investment vehicle for employees and self-employed individuals in Canada.Registered retirement savings plans were created in 1957 as part of the CanadianIncome Tax Act. They are registered with the Canadian government and overseen by the Canada Revenue Agency (CRA), which sets rules governing annual contribution limits, contribution timing, and what assets are allowed as investments.
RRSPs are similar to 401(k) plans offered in the United States. Contributions deposited in an RRSP before taxes grow tax-free until withdrawal, at which time it is taxed at themarginal rate. Individuals can open RRSPs through banks, credit unions, investment companies, and other financial institutions.
RRSPs come in various types, including:
- Individual RRSP: This account is registered and held in the contributor's name. The individual named on the account also benefits from the tax advantages and savings.
- Spousal RRSP: An individual can register an RRSP in their spouse's name. The contributor earns any tax advantage even though the account belongs to their spouse. Individuals who set up these accounts should keep contribution limits in mind as a spousal RRSP deposit will affect their contribution limit.
- Groups RRSP: A group RRPS is set up through an employer and is funded through payroll deductions. Combined contributions to a group and individual RRSP cannot exceed the annual maximum.
- Self-Directed RRSP: People who want to invest and manage a portfolio on their own can do so through a self-directed RRSP. This is generally meant for people who want to invest in stocks rather than funds.
Contributing to an RRSP gives the contributor several tax advantages, which are discussed below.
The annual contribution limit for an RRSP in 2023 is $30,780. That limit increases to $31,560 in 2024.
Tax Implications
Taxation of the RRSP is similar to the 401(k) in the U.S., where the money deposited into the RRSP is pre-tax and grows tax-free until it is withdrawn.This means that your contributions are tax-free but withdrawals are taxed as income when you retire. Contributors can deduct contributions from their taxable income when they file their annual tax returns.
Like the 401(k), the goal of the RRSP is to defer the tax now, and when the investment is distributed to the beneficiary at retirement, it may be taxed at a lower progressive tax rate.
For Canadians who also contribute to a 401(K) in the U.S., the 401(k) deduction on a Canadian tax return is limited to the RRSP contribution room minus any RRSP contributions. When making RRSP and 401(K) contributions, employees may have to defer some of the RRSP contributions and deduct them in a future year. IRA contributionsare not deductible in Canada.
A tax-free rollover of an RRSP into a retirement plan in the U.S. is not allowed. A transfer is considered a distribution under Canadian tax law and subject to Canadian non-resident withholding tax.
How Does Emigration to the U.S. Affect My RRSP Contribution?
If you are emigrating from Canada, you should maximize your contribution in the year that you leave the country. The government gives you 60 days after year-end to make this contribution. If you have taken any money out of your RRSP under the Home Buyers' Plan (HBP) or other plans, arrange to repay that amount before becoming a non-resident. Otherwise, that outstanding amount might be taxable in the year that you emigrate.
Can Canadian Residents Hold Traditional U.S. IRAs?
If you reside in the U.S. for an extended period, you may open an individual retirement account (IRA) if you are a legal U.S. resident with a valid Social Security number.
How Much Can I Contribute to an RRSP?
In Canada, the contribution limit for an RRSP is $30,780 in 2023 and $31,560 in 2024.
Can Foreign Citizens Invest in a 401(k)?
Yes, foreign citizens legally working for a U.S. company may invest in a company's 401(k) plan.
The Bottom Line
A registered retirement savings plan is registered with the Canadian government and allows individuals to save on a tax-deferred basis. RRSPs are similar to 401(k) plans offered in the United States. Canadian citizens who live and work in the United States may contribute to an RRSP if they have room based on limits set by the Canadian government each year.
Correction—May 9, 2023: A previous version of this article incorrectly stated that Canadian citizens who live and work in the United States may not contribute to an RRSP.
FAQs
Canadian citizens who live and work in the United States may contribute to an RRSP as long as they keep within the contribution threshold. Canadians may keep their RRSP intact when they move to the United States and let the income grow tax-deferred for Canadian tax purposes.
Can I contribute to RRSP if I live outside Canada? ›
Expert Answer: Unless you have unused RRSP contribution room from the period prior to becoming non-resident, you won't be able to make an RRSP contribution until the year after you have some earned income.
Can a US citizen contribute to an RRSP? ›
As an American citizen or green card holder living in Canada, an investor isn't limited by what investments they can put into an RRSP. What this means is they can hold Canadian ETFs and Canadian mutual funds and will not face the PFIC restrictions as long as they are held in the RRSP.
Do you have to be Canadian to contribute to RRSP? ›
You can set up and contribute to an RRSP up to the end of the year you turn 71 as long as you are a Canadian resident, have earned income and file a tax return. To learn more about contributing to an RRSP, review our RRSP Contribution Rules guide.
Can I keep my RRSP if I move to the US? ›
Contrary to popular belief, you are not required to deregister your RRSP/RRIF upon ceasing Canadian residency. You have the option to keep your RRSP/RRIF intact and have the income continue to grow tax-deferred for Canadian tax purposes.
Can I contribute to RRSP if I leave Canada? ›
If individuals have a significant amount of RRSP contribution room, they can utilize it to make contributions, subject to the normal limitations for the year of emigration, which could potentially reduce departure tax.
Is Canadian RRSP income taxable in the US? ›
As discussed above, RRSP retirement plans are treated as foreign grantor trusts for U.S. tax purposes. This typically means that a U.S. beneficiary of such a trust would be subject to U.S. taxation on income earned by the trust regardless as to whether or not it was paid to the U.S. beneficiary.
Can I contribute to my RRSP in USD? ›
Can I make a cash or in-kind contribution to my registered account in U.S. dollars? Yes. The funds or securities you contribute will remain in U.S. dollars in your account, but the contribution receipt will reflect the Canadian dollar equivalent.
Can a non Canadian citizen have an RRSP? ›
The good news is that you can still contribute to Group RRSPs and receive matching, as long as you: Have contribution room.
Are RRSP contributions tax deductible in the US? ›
In general, RRSP contributions are not tax-deductible in the U.S. like they are in Canada. However, contributions to certain company-sponsored group RRSPs are deductible in the U.S. under the Treaty. Contributions made to your RRSP are not subject to U.S. gift tax.
This averages out to a household income of $514,000. This is just in cash savings though, These numbers don't include assets or any pensions that you will receive. The average amount that Canadians hold in RRSPs (Registered Retirement Savings Plans) is $144,613, as of 2022.
What is the disadvantage of a RRSP? ›
There is less freedom in how you can withdraw from an RRSP, compared to a TFSA. Withdrawals are classed as taxable income (unlike TFSA withdrawals). Low-income earners pay a low rate of income tax, so RRSPs don't make financial sense for this kind of investor (a TFSA would probably be a better option).
Can you contribute to RRSP after 65 in Canada? ›
December 31 of the year you turn 71 years old is the last day that you can contribute to your RRSPs.
What happens to my Canadian pension if I move to the US? ›
Because CPP is a "member-contributed plan" it will always be yours, regardless of where you live in the world. If you paid in at least 1 CPP contribution, you are entitled to a benefit. OAS, on the other hand, comes out of the general tax revenues.
Do Canadian citizens working in the US pay taxes to both countries? ›
Canadian freelancers or independent contractors with an American client/work with a US company are exempt from paying US taxes. As you are a self-employed worker in the eyes of the CRA, you still must report all income in your tax return no matter where your clients are located. Are you a self-employed worker?
Can I keep my Canadian bank account if I leave Canada? ›
Note: You can keep a Canadian bank account and it can be really useful while living in the U.S. or overseas to have one! But change your address on this account to your new non-Canadian address. Do not change it to a family member's address in Canada, even though it may seem convenient to do so.
Are RRSP contributions deductible in the US? ›
In general, RRSP contributions are not tax-deductible in the U.S. like they are in Canada. However, contributions to certain company-sponsored group RRSPs are deductible in the U.S. under the Treaty.
Can you contribute to TFSA if you live outside Canada? ›
A TFSA is not recognized as such in foreign countries. You must stop making contributions on the date you become an official non-resident. If you make contributions while you are a non- resident of Canada, you'll be subject to a 1% in addition to other applicable taxes.
Do I have to pay Canadian income tax if I live abroad? ›
Even if you spend some time working outside Canada, you'll still be liable to pay federal and territorial tax. The amount of money you pay as a tax depends on what you earn. As a Canadian resident, you'll need to file a T1 tax return covering your income and expenses from Jan 1 to Dec 31 each year.
Can a Canadian retiree live outside Canada? ›
You can qualify to receive Old Age Security pension payments while living outside of Canada if one if these reasons applies to you: you lived in Canada for at least 20 years after turning 18. you lived and worked in a country that has a social security agreement with Canada.
