RRSP vs 401(k): The Cross-Border Worker's Guide
For Canadians working in the US and Americans working in Canada — how RRSPs and 401(k)s are treated under the Canada-US tax treaty, what to do with existing accounts, and how to avoid double taxation.
Structural Comparison: RRSP vs 401(k)
At first glance, the RRSP and 401(k) look identical: both are employer-adjacent, tax-deferred retirement savings vehicles where contributions reduce your taxable income today and withdrawals are taxed as ordinary income in retirement. Both grow tax-sheltered while invested. Both have mandatory withdrawal rules that kick in later in life. The structural similarity is why many cross-border workers assume their RRSP knowledge transfers directly to a 401(k), and vice versa. It mostly does — but the differences in limits, matching rules, and cross-border tax treatment are where the complications arise.
2026 Contribution Limits
The Canada-US Tax Treaty: What It Actually Says
Article XVIII of the Canada-US Tax Treaty (and its 1995 Protocol) governs how retirement accounts are treated across borders. The key provisions:
RRSP recognized by the IRS
The IRS recognizes the RRSP as a pension plan under the treaty. A Canadian living in the US can elect under Article XVIII(7) to defer US taxation of income accruing inside the RRSP. Without this election, the US would tax RRSP growth annually as ordinary income. You must file Form 8891 or attach a statement to your US return — failure to do so can result in the IRS taxing your RRSP growth every year.
401(k) recognized by CRA
A US citizen or permanent resident who has moved to Canada and holds a 401(k) can elect to defer Canadian taxation on 401(k) growth under the treaty (CRA IT-506 and Income Tax Folio S5-F3-C1). Without this election, CRA would tax the 401(k) growth annually. The election is made on your T1 return.
Withdrawals are taxed where you live
When you withdraw from an RRSP as a US resident, the withdrawal is generally subject to Canadian withholding tax (25% by default, reducible to 15% for periodic payments under the treaty) and is also taxable in the US. However, you can claim a foreign tax credit on your US return for the Canadian withholding. For 401(k) withdrawals as a Canadian resident, CRA taxes the income and you claim a foreign tax credit for any US withholding.
For Canadians Moving to the US: What to Do with Your RRSP
Do not close your RRSP when you move to the US. Withdrawing it triggers full Canadian withholding tax (25% on lump sum) and US taxation as ordinary income in the same year — a punishing double event. Instead:
Keep the RRSP in Canada.File the treaty election on your first US tax return to defer US taxation of RRSP growth. Continue to manage the RRSP investments — you can buy and sell within the RRSP without triggering a taxable event in either country. Contributions to the RRSP as a US resident are generally not deductible on your US return (the treaty defers growth, not new contributions), so prioritize your US employer's 401(k) for ongoing contributions.
When you eventually withdraw from the RRSP, Canada will withhold 15–25% depending on the payment structure. You then claim that amount as a foreign tax credit on your US return. In most cases, the combined tax is close to what you would have paid had you simply lived in one country — the treaty's intent.
PFIC warning: If your RRSP holds Canadian mutual funds, those funds may be classified as Passive Foreign Investment Companies (PFICs) by the IRS. PFIC rules are punitive — excess distributions and gains are taxed at the highest ordinary income rate plus interest charges. Replace Canadian mutual funds inside your RRSP with ETFs listed on US exchanges (which are not PFICs) before you establish US tax residency.
For Americans Moving to Canada: RRSP vs Keeping Your 401(k)
An American who moves to Canada and begins working will accumulate RRSP contribution room from their Canadian earned income. Should they contribute to an RRSP? In most cases, yes — RRSP contributions reduce Canadian taxable income dollar-for-dollar, and the treaty election defers US taxation of RRSP growth. This gives the RRSP the same structural advantage in Canada as the 401(k) had in the US.
Do not roll your 401(k) into an RRSP. Canada does not recognize 401(k)-to-RRSP rollovers as tax-deferred transfers. The 401(k) withdrawal would be taxed in both the US (with a 20% mandatory withholding) and Canada. Keep the 401(k) in the US. File the treaty election on your T1 to defer Canadian taxation on 401(k) growth. Withdraw from the 401(k) in low-income years to minimize the combined tax burden.
TFSA vs Roth IRA: The Tax-Free Parallel
Both the TFSA and Roth IRA use after-tax dollars, grow tax-free, and allow tax-free withdrawals in retirement. However, they are not treated symmetrically across the border. The Canada-US tax treaty does not grant reciprocal treatment to TFSAs. A TFSA held by a US resident is taxed annually by the IRS on all growth — the same treatment as a regular taxable account. There is no treaty election available for TFSAs.
Conversely, Roth IRA growth is taxed annually by CRA for Canadian residents unless a treaty election is made. CRA has historically taken a stricter view on Roth IRA deferrals than the IRS has on RRSPs, though CRA guidance has evolved. If you hold a Roth IRA as a Canadian resident, get specific advice from a cross-border tax specialist.
Bottom line for cross-border workers: Deplete your TFSA before moving to the US (or stop contributing once you establish US residency). Similarly, pause Roth IRA contributions when you become a Canadian tax resident until you have confirmed the treaty election applies to your specific situation.
Common Cross-Border Mistakes to Avoid
⚠ Forgetting to file the RRSP treaty election
Without the election on your first US return, the IRS taxes RRSP growth annually. This can result in significant back taxes and penalties if discovered years later.
⚠ Holding Canadian mutual funds in an RRSP as a US resident
PFIC rules apply. Replace Canadian-domiciled funds with US-listed ETFs inside your RRSP before establishing US tax residency.
⚠ Missing FBAR filing for RRSPs and RRIFs
US persons with foreign financial accounts exceeding $10,000 must file FinCEN Form 114 (FBAR) annually. RRSPs and RRIFs qualify as foreign financial accounts. Penalties for non-filing start at $10,000 per violation.
⚠ Rolling a 401(k) into an RRSP
Canada does not recognize this transfer as tax-deferred. The 401(k) withdrawal is fully taxable in both countries in the year it occurs.
⚠ Contributing to a TFSA as a US resident
TFSA contributions during US residency do not get treaty protection. The growth is taxed annually by the IRS, and you may owe information returns (Form 3520/3520-A) for the TFSA as a foreign trust.
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