If you are a US person (citizen, green card holder, or US tax resident) and you have a Canadian RRSP or RRIF, the IRS lets the account grow tax-deferred - just like a Canadian would experience it. You don't pay annual US tax on the dividends, interest, and gains inside the account. This wasn't always automatic - until 2014, US persons had to file Form 8891 every year to claim the deferral. That filing requirement is gone. The deferral is automatic. But several reporting obligations remain, and getting them wrong is expensive.
RRSP and RRIF growth is tax-deferred for US persons under Article XVIII of the US-Canada treaty. The election is now automatic - no Form 8891. But the account still has to be reported on FBAR and (if thresholds are met) Form 8938 every year, and withdrawals are taxable in the US to the extent they exceed your basis.
If you grew up in the US, the closest analogy is a traditional IRA or 401(k). Both are tax-deferred retirement accounts where contributions reduce current-year taxable income (within limits), the investments grow without annual tax, and withdrawals are taxed as ordinary income.
The differences:
From 2003 through 2014, US persons holding RRSPs and RRIFs had to file Form 8891 every year for each account. The form had two purposes: report the existence of the plan to the IRS, and elect the tax deferral under Article XVIII of the treaty.
The election was supposed to be made for the first year the US person held the plan. Miss the timely election, and technically the IRS could tax the income inside the RRSP every year - which it largely never did, but the technical exposure existed.
Result: cross-border practitioners spent years filing late Form 8891 elections under various IRS revenue procedures, and the IRS spent years processing them. It was administrative theater.
In October 2014, the IRS issued Revenue Procedure 2014-55. It did three significant things:
The deferral election is automatic. The reporting requirements are not. Three obligations continue:
An RRSP or RRIF is a foreign financial account. If the aggregate maximum balance of all your foreign financial accounts during the year was over $10,000 USD at any point, FBAR is required. Filed separately from your tax return, due April 15 with automatic extension to October 15.
The RRSP balance counts toward the $10,000 threshold even though the RRSP itself is tax-deferred. There is no exemption for retirement accounts on FBAR.
Filed with the 1040. Thresholds depend on filing status and whether you live in the US or abroad:
If you cross any threshold, Form 8938 is required. The RRSP / RRIF goes on the form as a foreign financial asset.
Despite the deferral, the IRS technically requires the US person to report income inside the RRSP - and then offsets it with a treaty deferral. In practice, this is handled by simply not including RRSP income on the 1040. The deferral is the point.
What is not deferred: any non-qualified investment inside the RRSP. PFICs held inside an RRSP are an open question (the IRS has never ruled definitively), but the safer position - and the one most cross-border practitioners take - is that the treaty deferral covers everything inside the plan, including PFICs that would otherwise trigger Form 8621 reporting.
When you withdraw from an RRSP or RRIF, the US wants its share. Two layers apply:
Canada withholds at the source. For non-residents, the treaty rate is 25% on lump-sum withdrawals and 15% on periodic pension payments (regular RRIF minimum payments). For residents, normal Canadian rates apply (and the rate jumps to 30% on amounts over $15,000).
The US taxes the income portion of the withdrawal - not the principal contribution that came from already-taxed money. This means you have a "basis" in your RRSP equal to:
For most cross-border clients, the historical basis is zero or close to it - Canadian contributions were deducted on the T1 each year, not paid for with after-tax money for US purposes.
The growth - the dividends, interest, and gains accrued inside the RRSP - is fully taxable in the US on withdrawal. The Canadian tax paid on the same withdrawal becomes a foreign tax credit (Form 1116), generally fully offsetting the US tax for clients in similar tax brackets.
One pattern that catches new US residents off guard: collapsing an RRSP after moving to the US.
If you collapse the RRSP entirely as a non-resident of Canada, Canada withholds 25% on the lump sum (treaty rate; statutory rate is also 25% for lump sums under domestic law). The US then taxes the full distribution as ordinary income. The FTC mechanics generally work, but if your US marginal rate is lower than 25%, you'll have unused foreign tax credit you can't apply.
If you instead convert the RRSP to a RRIF and take periodic payments (regular minimum withdrawals), the treaty rate drops to 15% on those periodic payments. This often produces a better total-tax outcome than a lump-sum collapse.
If you are moving from Canada to the US and you have an RRSP, the asset itself transfers cleanly. The account continues to exist; the deferral continues to apply on the US side under Rev. Proc. 2014-55.
What you should not do: collapse the RRSP just before moving in an attempt to "clean up." The withdrawal triggers Canadian tax (and Canadian withholding) on the full balance, and the US may also tax the income portion if the move date and the withdrawal date fall in the same US tax year. This is almost always worse than just keeping the RRSP intact and managing it from the US.
What to do instead:
The Tax-Free Savings Account is Canada's other major retirement-style account. For US persons, TFSAs are not covered by Article XVIII or Rev. Proc. 2014-55. The IRS treats a TFSA as a regular taxable foreign account.
This means:
For US persons, TFSAs are typically a tax planning trap rather than a benefit. Many cross-border advisors recommend not contributing to a TFSA after becoming a US person, and either collapsing existing TFSAs or accepting the ongoing US compliance complexity.