Are RRSP Contributions Tax-Deductible? + FAQs

No, RRSP contributions are not tax deductible in the U.S. This rule catches many cross-border taxpayers by surprise.

 

According to a 2021 H&R Block survey, over 76% of U.S. expats reported IRS audits due to incorrect foreign tax filings, risking heavy penalties and double taxation. 

 

If you’re a U.S. taxpayer with a Canadian RRSP (Registered Retirement Savings Plan), it’s essential to understand how the IRS views your contributions. In this comprehensive guide, we’ll break down the federal and state tax treatment of RRSPs, the role of the U.S.–Canada tax treaty, reporting requirements, and common pitfalls to avoid.

Here’s what you’ll learn in this guide:

• 📌 Why RRSP contributions can’t be deducted on U.S. tax returns – Understand how IRS rules differ from Canadian tax rules and why U.S. law treats RRSPs differently from 401(k)s or IRAs.

• 🔄 How the U.S.–Canada Tax Treaty prevents double taxation – Learn how treaty provisions allow tax deferral on RRSP growth and coordinate taxation of withdrawals, even though contributions themselves aren’t deductible in the U.S.

• 📝 Key IRS reporting requirements for RRSP holders – Find out which forms (like FBAR and FATCA Form 8938) you must file, and why Form 8891 is no longer required to defer U.S. tax on RRSP earnings.

• ⚖️ Federal vs. state tax treatment of RRSPs – Discover how federal IRS rules differ from certain state tax laws, and why states like California can tax RRSP income even if the IRS doesn’t (leading to potential double taxation).

• 🤝 Common mistakes and how to avoid penalties – From missed reporting to false assumptions about deductions, see real examples of cross-border taxpayers’ mistakes and how to stay compliant and penalty-free.

Understanding RRSPs and U.S. Tax Basics

An RRSP (Registered Retirement Savings Plan) is a Canadian retirement account that allows Canadians to deduct contributions on their Canadian taxes and grow investments tax-free until retirement. Essentially, Canada’s CRA (Canada Revenue Agency) treats RRSPs similarly to how the U.S. treats a 401(k) or traditional IRA: contributions are tax-deductible in Canada, and investment earnings inside the account are not taxed until you withdraw funds. However, from the perspective of the IRS (Internal Revenue Service), an RRSP is a foreign financial account – not a U.S.-qualified retirement plan. This difference sets the stage for why U.S. tax rules on RRSPs are so different.

U.S. taxpayers (including citizens and residents) must report worldwide income, which means if you have an RRSP, the IRS potentially has a claim on its income. Without special provisions, the IRS could tax interest, dividends, and capital gains inside your RRSP annually, even if you haven’t withdrawn the funds.

Fortunately, the U.S.–Canada Tax Treaty steps in to prevent immediate taxation on RRSP earnings (more on that later). Still, many Americans and dual U.S.-Canadian citizens are surprised to learn that just because Canada gives a tax break for RRSP contributions does not mean the U.S. will do the same.

If you’re a U.S. person dealing with an RRSP, it’s important to grasp a few fundamentals:

• RRSP contributions are not automatically recognized by U.S. tax law. The IRS doesn’t see an RRSP as an equivalent to an IRA or 401(k).

• The tax treaty allows deferral of RRSP growth, but does not make contributions deductible on a U.S. return (except in a very narrow circumstance discussed below).

• Reporting obligations apply. Even if your RRSP’s growth isn’t taxed yearly by the IRS, you have to disclose the account to the U.S. government through annual filings like FBAR and FATCA.

Understanding these basics will help as we dive deeper into how contributions, earnings, and withdrawals from an RRSP are handled under U.S. law.

Are RRSP Contributions Tax Deductible Under U.S. Law?

In general, RRSP contributions are not tax-deductible on a U.S. tax return. When you contribute to an RRSP in Canada, you lower your Canadian taxable income, but the U.S. doesn’t give you that benefit. For example, if you contribute $5,000 to your RRSP, Canada allows you to deduct that amount on your Canadian taxes. In the U.S., however, that $5,000 is still part of your gross income – there is no line on the U.S. 1040 to deduct an RRSP contribution. Why? Because the RRSP is not a “qualified retirement plan” under U.S. tax code.

U.S. qualified plans (like 401(k)s, 403(b)s, and traditional IRAs) have specific requirements under the Internal Revenue Code. Contributions to those plans can be deducted or excluded from income (up to certain limits) because they meet U.S. rules. An RRSP, by contrast, is a foreign plan. It doesn’t fall under sections 401, 408, or other U.S. codes that define qualified retirement accounts. The IRS essentially views your RRSP contribution as just putting money into a foreign investment account – there’s no U.S. tax incentive for doing so.

It’s a common mistake for newcomers to U.S. taxation to think they can claim an RRSP contribution on their U.S. taxes. Some may attempt to enter the contribution on Schedule 1 (where IRA deductions go) or ask their accountant how to get a U.S. deduction. The answer in almost all cases is no – you cannot deduct RRSP contributions on Form 1040. The income used for that contribution remains fully taxable by the U.S. in the year it’s earned.

Example: Sarah is a dual U.S.-Canadian citizen living in Toronto, earning income in Canada and contributing to her RRSP. In 2025, she contributes $10,000 CAD to her RRSP. Canada will allow Sarah to deduct that $10,000 on her Canadian tax return, saving her Canadian tax. But when Sarah files her U.S. tax return, she must include her full income (including the $10,000 she put into the RRSP) in her U.S. taxable income. She cannot deduct that contribution on her U.S. return, so effectively she gets no U.S. tax break for putting money into an RRSP.

The One Narrow Exception: Employer RRSP Contributions

The only exception to the above rule is a very limited one created by the U.S.–Canada Tax Treaty. Under Article XVIII(8) of the treaty, if a U.S. taxpayer is working in Canada and participates in a Canadian employer’s RRSP or pension plan, they may be able to deduct or exclude those contributions on their U.S. return – as if it were a U.S. employer plan. This situation typically applies to U.S. citizens or residents on temporary work assignment in Canada. Essentially, the treaty tries to put you in the same position as a local employee so you’re not taxed unfairly on retirement contributions while abroad.

Key points about this treaty-based exception:

• It applies only to employer-sponsored plans. For instance, a group RRSP or registered pension plan where your Canadian employer contributes or matches, or you contribute through payroll.

• Personal RRSP contributions don’t qualify. If you just contribute to your own RRSP outside of any employer arrangement, the treaty won’t help – those remain non-deductible in the U.S.

• U.S. deduction is limited to U.S. plan limits. The treaty caps the deductible amount to what would be allowed in a comparable U.S. plan. For example, your contribution can’t exceed the annual 401(k) limit or IRA limit (as applicable). It’s designed so you don’t get a bigger tax break than a similar situation in the States.

• Time-limited and conditional. Often, this relief is available only for a limited time (e.g. a few years of a temporary assignment) and you must have been participating in the plan before moving. The exact conditions can be complex, but the bottom line is that this is a special-case scenario.

For most everyday purposes, unless you are an American temporarily working in Canada and contributing to a Canadian employer’s retirement plan, you should assume RRSP contributions are not deductible on your U.S. taxes. Even many cross-border taxpayers are unaware of Article XVIII(8) relief because it’s not commonly used outside specific expat assignments. If you think you qualify for this exception, it’s wise to consult a cross-border tax professional to ensure you meet the treaty conditions and properly claim the deduction.

How the U.S.–Canada Tax Treaty Helps (and Doesn’t Help)

The U.S.–Canada Tax Treaty is the saving grace that prevents certain nightmares like double taxation on RRSP income. However, it’s important to know exactly what the treaty does and doesn’t do for RRSPs.

Tax-Deferred Growth in the RRSP

Under the treaty (specifically Article XVIII(7)), the U.S. agrees to defer taxing the growth inside an RRSP for U.S. taxpayers, as long as proper disclosure is made. This means that even though the IRS would normally tax foreign investment income annually, it will allow your RRSP earnings to grow tax-deferred until you actually take distributions. In essence, the U.S. respects the Canadian tax-deferred nature of the account to avoid taxing you every year on interest, dividends, and capital gains that stay inside the RRSP.

For many years, U.S. taxpayers had to file an election with the IRS to get this tax-deferral benefit. The election was made on Form 8891, which was a special form dedicated to reporting RRSPs and RRIFs (Registered Retirement Income Funds) to the IRS. On Form 8891, you would report contributions, earnings, and distributions, and you could elect to defer U.S. tax on the RRSP’s earnings under the treaty. Failing to file this form could result in the IRS treating the RRSP like a normal investment account (taxing all the annual income).

Good news: In 2014, the IRS eliminated the Form 8891 requirement. Now, RRSP owners don’t need to file a special election form each year. The IRS issued Revenue Procedure 2014-55, which basically grants automatic deferral for eligible taxpayers. If you’re a U.S. taxpayer with an RRSP, you are “deemed” to have elected treaty benefits for deferring tax on the RRSP’s growth, as long as you:

• Were entitled to benefit from the tax treaty (for example, you’re a U.S. citizen or resident who is the beneficial owner of the RRSP), and

• You comply with any required reporting (more on reporting shortly).

This change was retroactive, meaning it even covered people who forgot to file Form 8891 in previous years. It was a relief for many who had unknowingly not reported their RRSP properly.

After 2014, the treaty deferral on RRSP income is essentially automatic federally – you don’t include RRSP interest, dividends, or capital gains on your U.S. return annually, and you don’t need to file Form 8891 or a treaty election statement to justify it.

However, note that this treaty provision and Revenue Procedure do not make contributions deductible – they only defer tax on the earnings inside the RRSP. So while your RRSP grows without U.S. taxation each year, the money you put in initially was still after-tax from the U.S. perspective.

Taxation of Withdrawals from RRSPs

Just because the U.S. defers tax on your RRSP until withdrawal doesn’t mean you escape U.S. tax entirely. When you eventually withdraw funds from your RRSP, those distributions become part of your taxable income on your U.S. tax return (just like a withdrawal from a traditional IRA would). The treaty ensures that the timing of taxation aligns between the two countries, but both countries may claim a piece of the pie when money comes out:

• Canada will tax RRSP withdrawals at the time of distribution. If you’re a Canadian tax resident, the withdrawal is included in your income and taxed at your normal rate. If you’re a non-resident of Canada when you withdraw, Canada generally withholds a flat tax (usually 25%, or 15% if you take periodic payments under a RRIF).

• The U.S. will also tax the withdrawal as income in the year you receive it. There’s no treaty provision saying “only one country gets to tax the distribution” (except in certain pension cases when one is not a citizen of the other country – but if you’re a U.S. citizen, the U.S. always reserves the right to tax you).

This sounds like double taxation, but this is where foreign tax credits come in. Under the treaty and U.S. tax law, you can generally claim a credit on your U.S. tax return for the Canadian taxes paid on your RRSP withdrawal. The goal is that you pay roughly the higher of the two countries’ tax rates on that income, not both.

For instance, if Canada withholds 25% and your U.S. tax rate on that amount is 22%, the foreign tax credit should wipe out your U.S. tax (since you paid more to Canada). Conversely, if your U.S. tax rate is higher than the Canadian tax paid, you’d use the foreign tax credit to offset the Canadian portion and then pay the remaining difference to the IRS.

Example: John is a U.S. citizen who worked in Canada for years and built up an RRSP. He moves to Florida and at age 65 withdraws $20,000 USD from his RRSP. Canada withholds 15% ($3,000) because he converted his RRSP to a RRIF and is taking periodic payments. John will report the $20,000 as income on his U.S. 1040. Suppose his U.S. tax on that amount is $4,400 (22%). He can claim a foreign tax credit for the $3,000 Canadian tax.

That credit reduces his U.S. tax on this income, so he’d pay $1,400 to the IRS. In total, he paid $4,400, which is equal to the higher U.S. tax rate. If John’s U.S. tax bracket were lower, say 10% ($2,000 tax on $20,000), the $3,000 Canadian tax credit would fully cover the U.S. tax and even leave some unused credit (which he can’t get refunded, but could carry over to future years).

The treaty’s role is ensuring that John could defer U.S. tax until withdrawal and that he can use foreign tax credits or exemptions to avoid true double taxation. It doesn’t eliminate taxes altogether – it coordinates them.

What About Roth-Style Treatment? (No, RRSPs Are Not Roths)

It’s worth clarifying that an RRSP does not get Roth IRA treatment in the U.S. Even though an RRSP’s growth can be tax-sheltered while inside the plan (thanks to the treaty), the withdrawals are taxable. Some folks mistakenly think that since they contributed after-tax from the U.S. side, maybe the U.S. would treat the distribution as partly non-taxable (like how Roth IRA withdrawals are tax-free if rules are met). Unfortunately, that’s not the case. The IRS will still tax the full distribution (both your original contributions and the growth) at ordinary income rates.

The logic: The treaty is granting deferral as a benefit, but not the upfront deduction. So it’s like you put post-tax money in (no U.S. deduction), it grows tax-free (treaty deferral), and then it’s taxed when withdrawn (no special exclusion for the original contributions).

This is sometimes described as the worst of both worlds in terms of timing – you don’t get a U.S. deduction going in, but you still get taxed coming out. However, because of foreign tax credits, you often won’t double pay tax on the growth; you’ll pay tax to whichever country has the higher tax rate on that income at withdrawal (with the other country’s tax credited).

Treaty Summary – Benefits and Limits

To summarize how the tax treaty affects RRSPs for U.S. taxpayers:

• Deferral of U.S. tax on income earned inside the RRSP – you don’t pay U.S. tax yearly on interest/dividends/capital gains in the account.

• No automatic U.S. deduction for contributions – the treaty doesn’t change the fact that personal contributions aren’t deductible in the U.S.

• Possible deduction for employer plan contributions (Article XVIII(8)) – a limited relief if conditions are met, allowing some expats to deduct contributions to Canadian employer retirement plans.

• Taxation upon distribution by both countries – but with foreign tax credit to alleviate double tax.

• No Form 8891 needed now – the election to defer is automatic, simplifying compliance.

• Still need to report the RRSP accounts – the treaty doesn’t exempt you from reporting requirements like FBAR or FATCA (it only deals with taxation, not disclosure).

Knowing the treaty provisions means you can plan properly. For example, you wouldn’t cash out your RRSP while in a high U.S. tax bracket without considering the Canadian withholding and available credits. Or you wouldn’t assume that just because Canada doesn’t tax something (like certain RRSP transfers) that the U.S. will also ignore it – always check the treaty and U.S. rules.

IRS Reporting Requirements for RRSPs

Owning a foreign financial account like an RRSP comes with extra paperwork for U.S. taxpayers. Even though Form 8891 is history, you have other crucial reporting obligations to stay on the right side of the law:

• FBAR (FinCEN Form 114): The Foreign Bank Account Report is required if you have foreign financial accounts whose aggregate value exceeds $10,000 at any point in the year. An RRSP is considered a foreign financial account. Every year, you must report the highest balance of each foreign account (including RRSPs) to the U.S. Treasury via the FBAR (which is filed separately from your tax return, on the FinCEN online system). Penalties for failing to file FBAR are draconian, so this is a must-do if your RRSP (combined with any other foreign accounts) crosses the $10k threshold (which most do).

• FATCA Form 8938: Under the FATCA law, many U.S. taxpayers must also file Form 8938 (Statement of Specified Foreign Financial Assets) with their tax return. RRSPs are considered specified foreign financial assets. Whether you need to file Form 8938 depends on your total foreign assets and your filing status/residency.

  • For example, if you live in the U.S. and have more than $50,000 in foreign financial assets at year-end ($75,000 for married filing jointly), you’d have to file. The thresholds are higher for expatriates (e.g., $200,000 at year-end if you live abroad and file singly).

  • On Form 8938, you report the value of the RRSP, income from it (if any taxable, which usually there isn’t until withdrawal), and other details. Not filing when required can result in penalties and extend the statute of limitations on your tax return.

• Form 3520/3520-A: These forms are normally used to report foreign trusts. A retirement plan like an RRSP can technically be classified as a foreign trust for U.S. purposes. In the past, this created confusion and a compliance burden because foreign trusts have very complex filing rules.

  • The good news is that the IRS generally exempts RRSPs from Form 3520/3520-A filing if you’re electing (or deemed electing) the tax deferral under the treaty. Revenue Procedure 2014-55 confirmed that taxpayers who take advantage of the RRSP tax deferral don’t need to file trust forms for those retirement plans. Essentially, the IRS said: “We won’t treat RRSPs like nasty foreign trusts as long as you play by the treaty rules.” This exemption spares you from onerous trust-reporting penalties.

• Form 8833 (Treaty-Based Return Position): Sometimes when you use a tax treaty to change the normal tax outcome, you have to disclose it on Form 8833. For example, if you claim a treaty benefit that overrides a usual tax rule, Form 8833 is the place to declare that. For RRSPs, in the past, people would attach Form 8833 to say “I am a U.S. resident claiming treaty deferral on my RRSP earnings.”

  • However, since the IRS now grants automatic deferral without a specific election, filing Form 8833 for the RRSP deferral is typically not required. Most tax software and professionals will not file an 8833 for the routine RRSP deferral after 2014. If you are using the special deduction for employer RRSP contributions under Article XVIII(8), that might warrant a Form 8833 disclosure (since you are taking a treaty position to deduct something normally not deductible). It’s a good idea to get professional advice in that case.

• Reporting distributions: If you take a distribution from your RRSP, you should report it on your U.S. tax return (Form 1040) as pension or retirement income. There’s no specific line for “RRSP withdrawal”; you would include it with other taxable distributions (for instance, on the line for IRA distributions or pensions, with an explanatory statement if needed). You’ll also want to claim the foreign tax credit (on Form 1116) for any Canadian tax withheld to avoid double taxation on that distribution.

Keeping up with these reporting requirements is crucial. Many taxpayers get into trouble not for evading tax, but for simply failing to file an FBAR or FATCA form. The penalties for missing an FBAR can be $10,000 per account per year for non-willful violations, and much higher (even a percentage of the account balance) if willful. Given that an RRSP is often a substantial account, you don’t want to skip this.

Common reporting mistake: Some people think, “The IRS knows about my RRSP because it’s in the tax treaty, so I don’t need to report it.” This is wrong – the IRS doesn’t automatically know your foreign accounts. Canadian financial institutions might report U.S. account holders under FATCA, but you still have the obligation to file FBAR/8938 yourself. Treat the RRSP like you would any foreign bank or brokerage account when it comes to disclosure.

Scenarios: U.S. Taxpayers with RRSPs

Let’s explore a few common scenarios that U.S. taxpayers with RRSPs might face. Each scenario has unique considerations, but the theme of “no U.S. deduction for contributions” remains constant.

Scenario 1: American Expat in Canada with an RRSP (Working in Canada)

Profile: Jane is a U.S. citizen living and working in Canada. She’s on a work assignment for a few years at a Canadian company. Jane contributes to a group RRSP through her employer and also makes additional voluntary contributions to her personal RRSP.

Scenario 2: Canadian Moves to the U.S. (Snowbird or New Immigrant with an RRSP)

Profile: Alex is a Canadian citizen who recently moved to the United States for retirement. He’s a “snowbird” who decided to become a U.S. resident full-time in Florida. Alex built up a sizable RRSP in Canada over the years before moving. Now that he lives in the U.S., he’s not contributing to the RRSP anymore, but he still holds the account for his retirement savings.

Scenario 3: Dual Citizen in Canada (U.S. Citizen and Canadian Resident)

Profile: Maria is a dual U.S.-Canadian citizen living in Canada permanently. She works for a Canadian employer and contributes to an RRSP annually. Maria files taxes in Canada and also files a U.S. tax return each year because of her U.S. citizenship.

These scenarios highlight that no matter the situation – whether you’re an American in Canada, a Canadian in America, or a dual citizen straddling both – the U.S. tax stance is that RRSP contributions by themselves don’t get a U.S. tax deduction. The treaty provides significant relief (deferring tax on growth and coordinating withdrawal taxation), but it doesn’t turn an RRSP into a 401(k) for U.S. purposes. Always consider where you reside (for state tax in the U.S. and for Canadian tax obligations) and plan around the treaty provisions accordingly.

Pros and Cons of Holding an RRSP as a U.S. Taxpayer

Having an RRSP while under the U.S. tax system has both advantages and drawbacks. Here’s a quick comparison:

Every individual’s situation will differ, but these pros and cons reflect that an RRSP is a workable, treaty-protected vehicle for U.S. taxpayers – albeit one that doesn’t give the upfront tax perks Americans might be used to with domestic retirement plans.

Common Mistakes to Avoid with RRSPs and U.S. Taxes

Even seasoned taxpayers can slip up when dealing with cross-border tax issues. Here are some common mistakes to avoid:

• Assuming RRSP contributions are deductible in the U.S.: As we’ve emphasized, you cannot deduct your RRSP savings on a U.S. return (except for the rare treaty-covered scenario with employer contributions). Don’t reduce your U.S. income for something that isn’t actually deductible. This mistake can lead to underpaying U.S. tax and potential IRS penalties if not corrected.

• Failing to report RRSPs on FBAR/FATCA: The RRSP might feel like a “retirement account” rather than a bank account, but to the U.S. it’s reportable just like any foreign bank or brokerage account. Many dual filers forget to include their RRSPs (and other Canadian retirement accounts like RRIFs or TFSAs) on FBARs and Form 8938. This omission can be costly if discovered. Always include the highest balance of your RRSP on your FBAR, and list the account on Form 8938 if you meet filing thresholds.

• Not understanding state tax implications: If you live in a state with income tax, check its stance on foreign retirement plans. For example, California doesn’t recognize the treaty’s deferral. It taxes RRSP earnings each year as ordinary income and also taxes RRSP withdrawals fully (with no credit for Canadian tax). Other states (like New Jersey) generally follow federal treatment, but never assume – confirm your state’s rules to avoid nasty surprises.

• Cashing out or withdrawing RRSP funds without planning: A large, untimely RRSP withdrawal can trigger a big tax hit. A lump-sum withdrawal will incur a 25% Canadian withholding tax and be fully taxable in the U.S. in one year, often pushing you into a higher tax bracket.

  • It’s often better to leave the RRSP intact until retirement and take periodic payments (with only 15% Canadian withholding under the treaty). Always consider the tax impact in both countries before deciding on a large withdrawal.

• Ignoring the foreign exchange aspect: The IRS requires reporting all amounts in U.S. dollars, so using proper exchange rates is important. If the Canadian dollar rises between contribution and withdrawal, your distribution could appear larger in USD terms. Always use official exchange rates and be consistent.

• Treating a TFSA or other accounts like an RRSP: Some people assume all Canadian registered accounts get the same treaty benefits as RRSPs. That’s wrong. For example, a TFSA (Tax-Free Savings Account) is not covered by the treaty – the IRS taxes TFSA income each year (it’s not tax-free to the U.S.). If you assume a TFSA or other account is like an RRSP, you might leave taxable income off your U.S. return. Always confirm the U.S. tax treatment for each type of Canadian account.

Avoiding these mistakes comes down to being informed and, when in doubt, consulting with a cross-border tax expert. The rules can change (for example, the IRS could always update guidance on foreign pensions), so staying up to date is part of compliance.

Federal vs. State Tax Differences for RRSPs

We’ve touched on it, but let’s clearly delineate how federal IRS rules and state tax rules can diverge when it comes to RRSPs:

Federal (IRS) Treatment: The IRS, under federal law and the tax treaty, allows deferral of RRSP earnings and taxes distributions with credit for Canadian tax. In short:

• Income inside the RRSP is not taxed annually by the IRS (treaty deferral applies).

• Contributions are not deductible to compute federal taxable income (except the narrow treaty case).

• Distributions are fully taxable by the IRS, but you can use foreign tax credits for Canadian tax paid.

• Compliance requirements (FBAR, FATCA, etc.) are enforced at the federal level.

The IRS treatment is uniform for all U.S. taxpayers regardless of where they live. Whether you’re in Texas or New York or abroad, the federal rules on RRSP are the same. The tax treaty is part of federal law (treaties have the force of law), and the IRS honors it, as clarified by guidance like Rev. Proc. 2014-55.

State Treatment: U.S. states are not parties to the federal tax treaty. A state’s tax law can therefore tax things that the IRS, due to the treaty, does not. Each state with income tax has its own rules about conforming to federal tax law. Some states start their calculations with “federal adjusted gross income” which means if something isn’t in federal AGI (like deferred RRSP earnings), it won’t be in state income either—those states indirectly honor the treaty by default. Other states have decoupling provisions or don’t incorporate treaties.

• States that ignore the treaty (example: California): California is infamous for not recognizing foreign tax treaties in many cases. California tax law starts with federal income, but explicitly requires adding back certain types of income that were excluded by treaty.

  • For Canadian RRSPs, California treats them as if the treaty didn’t exist. So a California resident must report RRSP interest, dividends, and gains each year as taxable on their CA state return. If your RRSP grew by $5,000 in a year (even if unrealized gains), California expects you to pay state tax on that $5k. Additionally, if you receive an RRSP distribution, California taxes it fully (again) even though part of that was already taxed in prior years by California. California also does not provide a credit for taxes paid to Canada on retirement income. The outcome can be a form of double taxation at the state level.

  • (One possible relief: California has a “safe harbor” rule if you are outside the state on an employment-related contract for at least 546 consecutive days – in which case you may be treated as a nonresident for that period. But strict conditions apply.)

• States that follow federal treatment: Many states, like New York and Illinois, generally piggyback on federal definitions of income. They don’t separately tax treaty-exempt RRSP growth if it’s not in your federal AGI. In those states, if the IRS isn’t taxing RRSP growth annually, the state doesn’t either.

  • However, when you do take a distribution and it’s on your federal return as income, it will be income for state purposes too. States usually tax retirement income (though some have exclusions for pension/IRA income up to certain amounts, which may or may not apply to foreign pensions).

  • The key point is that if your state conforms to federal tax law, you won’t face state tax on the RRSP until you withdraw, and then it’s treated like ordinary retirement income.

• States with no income tax: If you live in a state like Florida, Texas, Washington, or others with no state income tax, you don’t have to worry about state taxation of your RRSP at all. No state filing, no state tax — one less complication in your cross-border tax picture.

Tip: If you’re planning a move and have a large RRSP, consider the state tax environment. Moving from Canada to California with an RRSP will introduce complications (and potentially extra taxes) that moving to Texas would not. If you already live in a high-tax state that doesn’t follow the treaty, be extra diligent with compliance and perhaps consult a state tax expert on minimizing the impact (though options may be limited beyond not drawing on the RRSP until you relocate or retire elsewhere).

Frequently Asked Questions (FAQ)

Q: Can I deduct my RRSP contributions on my U.S. tax return?
A: No. RRSP contributions are not deductible on a U.S. return in nearly all cases. Only certain employer-sponsored RRSP contributions qualify under a tax treaty exception, and personal contributions do not.

Q: Do I have to report my RRSP to the IRS or Treasury?
A: Yes. You must report your RRSP annually on an FBAR if its value exceeds $10,000, and on Form 8938 if you meet FATCA thresholds, even if the RRSP’s income is tax-deferred.

Q: Is the growth inside my RRSP taxed by the IRS each year?
A: No. Under the U.S.–Canada treaty, the IRS does not tax RRSP earnings annually as long as you comply with reporting. The investment growth is tax-deferred in the U.S. until you withdraw funds.

Q: Will I be taxed twice when I withdraw from my RRSP?
A: No. Both Canada and the U.S. tax RRSP withdrawals, but you get a foreign tax credit on your U.S. return for Canadian tax paid, so you won’t actually be taxed twice on the same income.

Q: Do I need to file Form 8891 for my RRSP?
A: No. Form 8891 was eliminated in 2014. You no longer need to file it. The tax deferral on RRSP income is now automatic under IRS rules, so just ensure you report the account via FBAR/FATCA.

Q: Can I roll over or transfer my RRSP into a U.S. IRA or 401(k)?
A: No. You cannot roll over an RRSP into a U.S. IRA or 401(k) without tax consequences. Any transfer would be treated as a taxable withdrawal from the RRSP (with Canadian withholding and U.S. income tax).

Q: Does the U.S.–Canada tax treaty protect TFSAs and other Canadian accounts too?
A: No. The treaty specifically covers RRSPs (and similar pension accounts), but not TFSAs or RESPs. Income in those other accounts is fully taxable by the IRS annually, with no special tax deferral.

Q: I’m a dual U.S.-Canadian citizen living in Canada. Should I use an RRSP or just invest without it, considering U.S. taxes?
A: Yes. The benefits of an RRSP (a Canadian tax deduction and tax-deferred growth) generally outweigh having no U.S. deduction. The treaty defers U.S. tax on growth, and foreign tax credits prevent double taxation.