Moving to the U.S.: What Happens to Your RRSP, TFSA, RESP and FHSA
Your Canadian registered accounts don't close when you move, but they don't all travel well. The RRSP and RRIF are protected by the Canada-U.S. tax treaty. The TFSA, RESP and FHSA are not: the IRS can tax their income every year and may require extra filings. The best time to deal with them is before you become a U.S. resident.
RRSP / RRIF: Keep. Treaty-protected.
TFSA: Withdraw. Before you move.
RESP: Decide. Keep, close or transfer.
FHSA: To RRSP. Tax-free transfer.
The short version
RRSP / RRIF — Canada after you leave: stays tax-deferred; 25% withheld on withdrawals (15% on some periodic RRIF payments). U.S. once you're resident: growth stays tax-deferred under the treaty; report on FBAR and Form 8938.
TFSA — Canada after you leave: stays tax-free; no new room, and contributions are penalized. U.S. once you're resident: income taxed every year; possible foreign trust filings.
RESP — Canada after you leave: grants stop for a non-resident beneficiary. U.S. once you're resident: income may be taxed every year; possible foreign trust filings.
FHSA — Canada after you leave: tax-free home withdrawal only as a resident, for a Canadian home. U.S. once you're resident: income taxed every year; possible foreign trust filings.
RRSP and RRIF: usually keep them (treaty-protected)
Canada doesn't tax your RRSP or RRIF when you leave; they're excluded from the departure tax. In the U.S., growth stays tax-deferred until you withdraw.
U.S. deferral is automatic (Rev. Proc. 2014-55)
No election form is needed. You still report the accounts on the FBAR and, above its thresholds, Form 8938. They're exempt from Forms 3520 and 3520-A.
Withdrawals as a non-resident: 25% · 15%
Canada withholds 25% on lump sums, usually your final Canadian tax. Periodic RRIF payments within limits (twice the minimum, or 10% of the value) get 15%. In the U.S. the withdrawal is taxable, with a Form 1116 credit for the Canadian tax.
Your U.S. cost
Many advisors treat the value on the day you became a U.S. resident as your U.S. cost, so only later growth is taxed in the U.S. Keep a statement showing that value.
Timing withdrawals
As a Canadian resident, withdrawals are taxed at your full marginal rate. After you leave, usually a flat 25%, which can be much lower and is creditable in the U.S.
State tax: Some states, including California, don't follow the treaty and can tax the income inside your RRSP each year.
Your brokerage: Many Canadian brokers can't let U.S. residents trade and may restrict the account or ask you to move it. Ask before you leave.
TFSA: tax-free only in Canada (not protected)
A TFSA stays tax-free in Canada after you leave, but the U.S. doesn't recognize it, which makes it the account most likely to cause trouble.
In Canada
You can keep it and withdraw tax-free, but you earn no new room as a non-resident, and contributions made while a non-resident are taxed at 1% a month. Withdrawals are added back to your room the following year, usable once you're a resident again.
In the U.S.
Interest, dividends and gains inside it are taxable every year. The IRS may treat it as a foreign trust (Forms 3520 and 3520-A). Canadian funds inside it are PFICs, with punitive tax and Form 8621.
Usual approach: withdraw before you move. Growth up to the day you become a U.S. resident is tax-free in Canada and not taxable in the U.S. Withdrawing it all before the move leaves nothing for the IRS to tax. If you return to Canada later, you can put the money back using the restored room.
RESP: depends on your child's plans (not protected)
An RESP can stay open after you move, but grants stop once your child is a non-resident, and the U.S. may tax the income to you each year.
In Canada
The Canada Education Savings Grant is only paid while the child is a Canadian resident. School payments can still be made for a qualifying program, including some outside Canada, with Canadian withholding for a non-resident student.
In the U.S.
The treaty doesn't cover RESPs. The IRS may tax the income to you each year and treat it as a foreign trust. Canadian funds inside it can be PFICs.
Your options
Keep it: If your child is likely to study in Canada soon and you accept the U.S. reporting. Stop contributions that no longer earn grants.
Close it before moving: Contributions come back tax-free; grants are repaid. Earnings can be paid to you only if the plan qualifies, taxed plus 20%, unless up to $50,000 goes to your RRSP.
Transfer it: To a sibling's RESP if another child is staying in Canada.
FHSA: usually move it into your RRSP (not protected)
The FHSA is built for buying a home in Canada as a Canadian resident, which rarely fits someone moving to the U.S.
In Canada
A tax-free qualifying withdrawal requires you to be a Canadian resident buying a home in Canada. Other withdrawals are taxable, with non-resident withholding.
In the U.S.
Too new to be covered by the treaty. Its income can be taxed every year, and it may be treated as a foreign trust.
Usual approach: transfer to your RRSP before you move. A direct transfer to your RRSP or RRIF is tax-free and uses no RRSP room. Once inside the RRSP, it gets the treaty protection the FHSA lacks, and you keep the deduction already claimed.
Before you move: checklist
TFSA: withdraw it, unless you have a clear reason to keep it.
RESP: decide whether to keep, close or transfer it, based on your child's plans.
Brokerage: ask whether your RRSP can stay with your current firm once you live in the U.S.
Departure tax: estimate the deemed sale of non-registered investments on the day you leave. Registered accounts are excluded.
FHSA: transfer it directly to your RRSP or RRIF.
RRSP: avoid large withdrawals while still a resident; get a statement of its value on your move date.
Canadian funds: review Canadian mutual funds and ETFs outside the RRSP, which the U.S. treats as PFICs.
After you move: checklist
Canada
Tell banks and brokers you're a non-resident so the right withholding applies. When: right after the move.
File your final return as a departing resident, with T1161 and T1243 if needed. When: April 30.
Don't contribute to your TFSA while a non-resident. When: every year.
U.S.
File your first U.S. return, usually dual-status for the year of the move. When: April 15.
Report Canadian accounts, including the RRSP, on the FBAR if over $10,000 USD. When: April 15 / Oct. 15.
File Form 8938 if your foreign assets pass its threshold. When: with your return.
Report income from any TFSA, RESP or FHSA you kept; consider Forms 3520 and 3520-A. When: with your return.
Check whether your state follows the treaty for your RRSP. When: with your state return.
Talk to Icantax
The months before a move are when the best decisions are still available. We review your RRSP, TFSA, RESP and FHSA before you leave, prepare your Canadian departure return and first U.S. return together, and set up U.S. reporting for anything you keep in Canada.
Call 604-496-2200 or email info@icantax.ca — Unit 110 - 13575 107A Avenue, Surrey, B.C.
General information, not tax advice for your situation.Content coming soon.
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