In case of moving out of Canada, the Registered Retirement Savings Plan (RRSP) does not disappear—yet the tax obligations do shift. Embracing what happens next is fundamental to preventing unpleasant surprises when withdrawing funds later.
The good news is individuals do not have to collapse or transfer the RRSP after leaving Canada. The account can remain open and continue to grow tax-deferred. However, once you become a non-resident, withdrawals are taxed differently.
As a non-resident, Canada usually withholds 25% tax on each RRSP withdrawal. This flat rate applies regardless of the amount taken out and is distinct from the tiered rates residents pay.
That said, tax treaties may have a lowering impact on this rate. Under the U.S.–Canada tax treaty, withdrawals structured as periodic pension-type payments may qualify for a reduced 15% withholding rate. Lump-sum withdrawals, however, typically remain taxed at 25%.
U.S. residents should also consider how their RRSP is treated by the IRS. Although growth inside the RRSP is not taxed annually under IRS Rev. Proc. 2014-55, withdrawals are fully taxable in the U.S. as ordinary income. In addition, the account must be reported annually through IRS forms like:
Leaving Canada does not signify that individuals have to pay more tax than necessary. We present several smart strategies that can be taken into account as below:
Leaving the country indeed changes the tax obligations but not the access to retirement savings. The RRSP can remain a strong financial asset with smart planning—wherever you live. If you are unsure about surrounding implications, reach out to us today. Watter CPA is ready to present professional assistance.
